A current account is a fundamental financial tool that offers a range of advantages and disadvantages for individuals and businesses. In this article, we delve into the features, benefits, and potential drawbacks of a current account to help readers make informed decisions about their banking needs.
Banks provide current accounts, a product that is ideal for the business community since they frequently need to do several transactions. It is made to meet the needs of partnership firms, single proprietor firms, independently employed individuals, start-up businesses, business houses, traders, companies, enterprises, LLPs, and entrepreneurs, among others. These organizations often conduct financial transactions in their accounts, thus a current account is offered to them as a practical banking option.
Because current accounts typically do not have a cap on the maximum number of transactions, most clients choose them since they serve their needs. Having laid this basis, this article explores the advantages and disadvantages of a current account.
Definition of Current Account
A current account, often known as a financial account, is a type of deposit account kept by individuals who regularly engage in a significantly higher volume of banking operations. The bank provides it to the applicant upon request and makes it often or instantaneously available.
Current accounts offer a wide range of tailored alternatives to help with financial transactions and are related to liquid deposits. Additionally, current accounts enable the use of the bank’s cheque service to pay creditors.
In contrast to savings accounts, current accounts typically don’t pay interest and have higher minimum balance requirements. The greatest benefit of a current bank account, nevertheless, is the simplicity with which account users can use an overdraft up to a certain amount.
Features of a Current Account
a. Higher transaction limit than a savings account.
b. A current account is usually an interest-free account (however some banks offer interest rates on current account deposits).
c. It requires a higher amount of minimum balance at the time of opening the account.
d. Businesses, firms, individuals, company owners, etc., can operate current accounts. However, a business cannot have multiple current accounts.
e. Current accounts do not have a limit on cash deposits in the home branch.
f. The primary objective of a current account is to smoothly carry out business transactions. A current account allows a customer to handle heavy transactions in payments and receipts on a regular basis.
g. With current accounts, pay orders, cheques, etc can be issued.
h. As a current account holder, you are entitled to an overdraft at any given time.
i. Penalty charges could be levied if the minimum balance isn’t maintained.
Benefits/Merits/Advantages of A Current Account
1. One of the best aspects of a current account is the ease with which it allows you to manage your funds. You can use easy banking services like doorstep banking, online banking, 24-hour phone banking, etc. to make as many deposits and withdrawals as you’d like without giving the bank any notice beforehand. A current account also enables you to deposit funds or pay creditors using fee-free services such as cheques and demand drafts.
2. Building business reputation: Businesses work hard to build and uphold their reputations as well as their image. Maintaining a current account for all of your business dealings demonstrates your professionalism and is regarded as a show of seriousness about the company. A current account helps the business get more exposure because the name of the company is printed on all of the cheques and demand drafts that are issued.
3. Large amounts of receipts and/or payments can be handled systematically with current accounts.
4. Limitless withdrawals are permitted under these accounts, subject to cash transaction costs.
5. Overdraft facilities are feasible for current account owners: Banks let holders of current accounts temporarily overdraw their balance to address a cash deficit (note that the requirement to maintain a minimum balance still holds for current accounts). The main benefit of a current account over a savings account is the overdraft option, which can help you deal with short-term financial difficulties.
6. Tracking business growth: Keeping your personal and business earnings in the same savings account might be problematic because it makes it impossible to monitor your company’s expansion. If your personal finances are in order, you may not even notice when your firm suffers a loss because you use the same account for all monetary transactions. A current account helps you to separate your business earnings from your personal finances, that way, you can determine whether your company is profitable or losing money.
7. Creditworthiness: Lenders will undoubtedly want to check your creditworthiness and the growth of your business when you apply for a loan to expand it. In addition to providing a clear picture of your company’s finances, having a current account assists the account holder’s creditors, who can get information about the account holder’s creditworthiness via an inter-bank connection.
8. There are no limitations on deposits made into current accounts that were opened at the bank’s home branch. Account holders who pay the necessary charges can also deposit cash at other branch locations.
9. Cheques, demand drafts, or pay orders can be assigned through a current account for making direct payments to creditors.
10. Multi-location funds transfer.
Demerits/Disadvantages of a Current Account
1. No Interest on Deposits: The money put in this account, unlike Savings Accounts, does not accrue interest. This is the major drawback of having a current account. Customers lose the opportunity cost on their money, which could have earned interest if it was kept somewhere else. Some banks give a small amount of interest, although it is very modest.
2. For transactions involving current accounts, some banks impose transaction fees and do not provide free transactions. A current account might help you with frequent transactions, but every transaction is subjected to a predetermined fee by the bank. In addition, charges for corporate business transactions are typically substantial.
3. The most prominent disadvantage of a current account is that account holders have to maintain a high amount of minimum balance in their accounts at all times. Without said balance, banks may levy penalty charges.
4. High Cost of Bank Services: Because service fees for current accounts are far higher than those for savings accounts, whenever a current account user wants any additional services, he or she must pay a significant sum of money in service fees. Furthermore, since current accounts avail the account holder of additional services and packages, most banks charge high fees from customers and hence there is an administrative overhead associated.
5. Cap on Free Cash Deposits & Free Cash Withdrawals: Many banks impose monthly limits on the amount of free cash withdrawals and deposits. One is responsible for the cost incurred after exceeding such limit
6. Confusing Fine Print: Compared to other types of accounts including savings accounts, fixed accounts etc, maintaining a current account involves more complicated and time-consuming paperwork.
7. Banks could also impose a limit on the number of free chequebooks and demand drafts for current account holders.
8. Bill Payments cannot be Automated: In contrast to Savings Bank Accounts, users cannot set up standing instructions in their current account to make bill payments automatically.
Current accounts have features that set them apart from other types of bank accounts. Whilst there are several advantages of current accounts, it also has disadvantages. For this reason, it is recommended that prior to opening a bank account, you carefully access your needs and demands before making a selection. By so doing, you will be able to get the maximum benefits of the said bank account.