Banking plays an important function for all businessmen and service-class persons in today's world. Even if a small segment of society likes to transact with cash, such individuals maintain bank accounts and use banking services for various reasons. But most of the times, the question lies as to which type of account should be opened as there is an array of types of accounts available with banks. Current and savings accounts are two of the most frequent types of accounts you'll come across when trying to open a personal account with any bank. These two tales are similar yet different in more ways than one, making it difficult for most people to distinguish between the two. Let's take a look at the basic definitions, features, and differences between savings and current accounts to clear up this long-standing misunderstanding.
Savings Account: What are the basic characteristics?
A majority of individuals own a savings account, which is the most basic sort of bank account. A savings account serves as a secure haven for your money, allowing you to deposit and withdraw funds at any time while collecting a little amount of interest. Many banks, financial organizations, and credit unions offer the opportunity to open a savings account. Savings accounts typically feature a fixed interest rate that applies to the money deposited in the account. This means that the more money you maintain in the account, the more profit you earn in the form of interest on your savings. Savings account interest rates in the UAE can range from 0.25 percent to 3 percent, depending on the bank.
Current Account: What are the basic characteristics?
A current account is an account that is used for everyday transactions, making it a good choice for businesses, firms, companies, government agencies, and so on. A current account is formed when an entity has to make multiple daily fund transfers, which is the situation for all enterprises. Current accounts are appealing because of the transaction flexibility and fluidity they provide. To operate without penalties, current accounts require a somewhat large minimum balance. Why, you might wonder, is it impossible for a business owner to create a savings account? The only explanation for this is because the current account has fewer restrictions on the quantity of cash deposits and withdrawals. It provides consumers with a large amount of liquidity; however, unlike a savings account, it does not pay interest on deposits placed in the current account.
Savings Account versus Current Account: What’s the Difference?
Both accounts have their own set of features and are intended for distinct purposes. A savings account is designed to meet the needs of an individual, but a current account is designed to meet the needs of businesses and organizations to conduct ongoing banking activities. In many ways, the current account differs from the savings account. Both accounts cater to a user's various financial demands and help them manage their money more effectively. The following are the most important elements to consider while deciding between a savings account and a current account:
PURPOSE
The first step is to figure out why you're opening the account. You're ready to open a bank account once you've decided your requirements. The savings account is primarily intended to promote and encourage individual savings. A savings account is the most practical option if you plan to conduct fewer transactions and simply want to maintain your deposits/income/salary in your account and use it for your monthly expenses.
If you run a business that requires several transactions on a daily basis, such as trades, retailers, industries, companies, or service organisations, a current account can accommodate all of your needs.
BALANCE
You must maintain a minimum amount in your account, unless you have a zero balance savings account. A savings account's minimum balance is usually insignificant. Users must, however, maintain a higher minimum amount in their current account than in their savings account.
You can open a variety of current accounts, depending on the type of account you want to open and the bank you want to open it with. One current account can be opened with a minimum amount of 10,000 AED, while the other account may require a minimum balance of 500,000 AED.
INTEREST
As stated above, the banks in UAE can offer the Interest Rate on Savings Account anywhere ranging from 0.25 percent to 3 percent. On the other hand the nature of a current account is fluid, allowing for frequent transactions; it is used for business purposes, and the deposits are not eligible for interest. Some banks, however, provide a sweep-in service. It means that after you achieve a particular amount of money, the money is transferred to a fixed deposit where you can receive interest.
OVERDRAWING
The first thing to understand is what overdrawing or an overdraft facility is. Banks give this service to its customers who have an account, allowing you to withdraw more money from your account than is actually available. If you use such a service, your account will be marked as overdrawn.
Banks do not provide an overdraft facility for savings accounts. Current account users, on the other hand, are eligible for an overdraft because their current account is used for several transactions each day.
WITHDRAWALS
Users of savings accounts are entitled to a certain number of free withdrawal operations per month. If you exceed the free transaction limit, the bank will charge you a fee for each withdrawal. Current accounts, on the other hand, allow users to conduct commercial transactions in a seamless manner.
Apart from these differences, you should also consider the Benefits of Savings as well as Current Accounts.
Benefits of Savings Accounts
EASY ACCESS TO MONEY
In the event of an emergency, the savings account has made it incredibly straightforward for its users to access money at any time and from any location. You can quickly withdraw monies already deposited in your bank account to pay an unexpected expense. Net banking gives all savings account holders access to their accounts 24 hours a day, seven days a week. All you have to do now is activate it on your phone or other electronic device. You may easily withdraw money through ATMs, online banking, bank teller machines, and other methods.
MONEY IS SECURE
It is safer than having it at home because if a natural disaster occurs, your home catches fire, or you become the victim of a well-planned robbery, you could lose all of your money. Despite the fact that your money is stored by a third party, it is kept safe in a savings account.
MAKE DEPOSITS AND PAYMENTS ON A ROUTINE BASIS
Automated payments are now possible thanks to savings accounts. Many financial organizations allow you to make deposits and have payments deducted from your account on a set date. It saves you a lot of time because you don't have to waste it on low-value tasks like bill payments, EMIs, or other monthly loan payments. This will also help you avoid late fees because you are less likely to forget or skip a payment.
AIDS IN THE SAVINGS PROCESS
The objective of a savings account is to keep your deposits distinct from your other money, such as long-term investments, cash on hand, or money in current accounts. Savings accounts encourage you to save and make regular contributions since you can see your money grow over time. If you're saving for a specific objective, such as a wedding, children's education, buying a new house, investing in gold, or some other valuable commodity, a savings account becomes a useful asset.
Benefits of Current Accounts
CLARIFIES AMONG PERSONAL AND BUSINESS FINANCES
A current account aids in the separation of what is related to the proprietor's personal financial status and what is related to the business's financial status. Opening a current account will not only help you better manage your finances, but it will also allow you to assess and demonstrate your company's whole financial condition at any given time. If a business owner does not separate his personal income from his business income and his personal income is healthy, the owner may not be able to tell whether the firm is losing money or gaining money.
NO LIMIT ON NUMBER OF TRANSACTIONS
Users of the current account can conduct as many transactions as they want in accordance with the nature of their business; they will not be charged extra for cash withdrawals or transfers to other accounts. As a result, you won't have to keep track of how many transactions you've previously completed, and you'll be able to conduct as many as you want.
OVERDRAFT FACILITIES
It is one of the most significant advantages of the current account because practically every organization faces ups and downs. You may be in a difficult circumstance where you don't have enough money in your current account to pay for raw materials, or you may have sent a check to a vendor without having the necessary funds in your account. In such instances, banks recognize the problem and provide current account holders the option of allowing their account to become overdrawn in the event of a cash shortage.
IMPROVES YOUR CREDIT SCORE
If you can effectively handle your current account inflows and outflows, you'll be able to demonstrate your creditworthiness and improve your credit score. If you are in the import/export industry and have a current account with a reputable bank, you will not need to submit a letter of credit to overseas counterparties.
Conclusion
Thus we can conclude with that fact that both the types of accounts have their own kind of merits which can benefit you in their own ways. Therefore you should choose an account which is more successful in catering your needs and meeting your demands. We hope this blog was helpful in providing you relevant information.
