Current Account vs Savings Account: Know Which is Right for you

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I must admit, I was a novice at understanding banking terms till just a few years ago. I didn’t even know what the current vs savings account debate was about. I remember the first time I walked into a bank. After 20 minutes of waiting in line, I realised I was standing in the wrong queue. When I finally got a chance to express my needs to an employee at the bank, she asked me what type of bank account I wanted to open.

Luckily for me, I was able to explain to her that I had just turned eighteen and was looking to open an account as I was now eligible. She suggested I open a savings account with a low minimum balance requirement.

It can be tricky to navigate banking as a newbie. Thankfully, in the internet age, we can teach ourselves life skills like opening a bank account and when to file taxes.

Or which kind of account is right for me.

What is a savings account?

A savings account is a financial instrument offered by banks and financial institutions. It allows users to save money in their bank of choice while earning an interest on their money. This interest earned helps save the purchasing power of money and also protects or tackles the effect of inflation. This feature makes a savings account a great choice for managing your cash flows, gaining access to banking features, and growing your wealth over time.

What is a current account?

A current account is a version of a bank account that is primarily used to make business transactions. This type of account is generally preferred by business owners and merchants who need to make several transactions on a daily basis. It also allows users to borrow money from the bank in the short term.

Current account vs savings account

Savings accounts and current accounts are the two most notable types of bank accounts. 

While they have some overlap, they are generally used for two entirely different purposes. These are the differences between a savings account and a current account.

Savings account

Current account

Savings accounts are financial instruments offered by banks for users to safely store their money in the banking system

Current accounts are financial instruments offered by banks to business owners who need to make a larger number of transactions than an average customer.

Savings accounts offer an interest based on their interest rate for the money stored in a savings account. 

Generally, a current account offers no interest to its users. 

Savings accounts require their users to maintain a relatively low minimum balance in their accounts. In certain cases, they may even offer zero balance savings accounts where users do not have any minimum balance requirements. 



Current accounts generally require their users to maintain a much higher minimum balance. Failing to maintain this balance incurs heavy penalties.



Savings accounts usually have limits on the number of transactions and cash withdrawals

Current accounts usually have no limit on the number of transactions or cash withdrawals.

Generally, once a certain number of monthly transactions are crossed, the bank may charge savings account holders an additional fee.

Current accounts have an unlimited number of free transactions.

There is no interest charged by savings accounts on money borrowed by the bank

Current accounts charge interest on money borrowed by the bank for the short term

Similarities between a current account and a savings account

While they are meant for different purposes, these accounts also have some similarities. They are both bank accounts at the end of the day and provide users with access to general banking features such as debit cards and internet banking facilities. Both accounts also offer users the option to open individual accounts or joint accounts with two or more parties.

Conclusion

Whether you should opt for a current or savings account depends on your personal needs. When it comes to banking, one size definitely doesn't fit all. If you’re a business owner, you might want to consider a current account or a savings account. However, not all businesses need to make multiple business transactions on a daily basis. If you run a business that does not need the current account's features, you may be better off opening a savings account. The interest rates these accounts offer can grow your money over time.

If you do open a savings account, however, you want to make sure your interest rates are higher than the rate of inflation. However, when it comes to interest rates, what may seem like small increments make a huge difference down the line. On Fi, you can park your money in Jars that help you grow it at a much higher interest rate than a savings account.

Frequently asked questions

Which is better, savings or current account?

It depends on your needs. Savings accounts are generally better for individuals looking to store their money safely and grow their wealth over time. Current accounts are generally better for businesses that need to make multiple transactions on a daily basis.

Is a current account the same as a savings account?

While current accounts and savings accounts are both bank accounts offered by most banks, they are not the same. Current accounts are better suited for business owners and savings accounts are better suited for individuals.

What are the disadvantages of a current account?

Banks generally do not pay interest for the money stored in a current account, unlike savings accounts. They also have a higher minimum balance requirement than a savings account. Banks also charge current accounts interest for the money borrowed in the short term.

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