difference between current account and savings account

Key Differences Between Current Account and Savings Account

18^th Sep 2023...

Published By : Team 811

Managing your money begins with choosing the right kind of bank account — one that fits your spending habits, savings goals, and financial needs. Among the most common types are savings accounts and current accounts. While both are essential for everyday banking, they serve very different purposes.

If you’ve ever wondered which one is right for you, this guide will help you understand the key differences between current and savings accounts, their features, and how each can support your financial journey. Let’s break it down simply and clearly.

Savings account: Deeper Features and Benefits

A savings account is designed for individuals to deposit and save money while earning interest and enjoying day-to-day flexibility.

Interest Earnings

This is one of the primary advantages of a savings account. The interest earned represents an additional income stream that grows over time. Being a Kotak811 customer, you can experience financial empowerment with a Kotak811 zero balance savings account with the ActivMoney feature. Just like a Fixed Deposit, it enables you to earn up to 7% p.a. interest on your deposits without any lock-in period, with the flexibility to withdraw your money anytime.

Restricted Withdrawals

Unlike current accounts, savings accounts typically limit monthly withdrawals. This nudges disciplined saving habits and helps individuals stay focused on their goals.

Goal-Oriented Saving

Many banks offer goal features and auto-transfers into separate pots, which simplifies saving for emergencies, vacations, or a home down payment.

Minimum Balance Requirement

Some savings accounts require maintaining a minimum balance, with penalties or reduced interest for falling below it. At Kotak 811, you can open a zero balance savings account using your Aadhaar and PAN card through your smartphone.

Current Account

A current account is a type of bank account meant to facilitate frequent transactions by entrepreneurs, business people, and traders running their businesses. A current account is a non-interest-bearing account. That means that the bank does not pay any interest on the deposits. Also, the account has no limits on the number of transactions meaning account holders can deposit and withdraw from their account as many times as necessary. There is also no limit to the amount of money an account holder can deposit or withdraw from their account. But they must have sufficient funds in their account to complete the transactions.

Key features of a current account

Transactional flexibility

Current accounts support smooth, high-volume daily operations such as direct debits, standing orders, and electronic transfers, which helps manage recurring payments without friction.

Overdraft facility

Many current accounts provide an overdraft facility that allows withdrawals beyond the available balance up to an approved limit. This is useful for temporary cash-flow gaps or unforeseen expenses.

Business-specific services

These can include chequebooks, cash management solutions, merchant services, and access to business loans, helping streamline working capital and operations.

Direct payments

Setting up direct debits and standing orders simplifies salary payouts, supplier payments, utilities, and EMIs.

Also Read: How AI Is Transforming The Banking Experience

Differences Between Current and Savings Accounts

So, if we try to understand what the difference between a current account and a savings account is, the following points can be helpful:

Interest: A savings account earns interest on savings, whereas a current account doesn't.
No. of Transactions: Savings account has a limited number of transactions, whereas, for a current account, the number of transactions is unlimited.
Purpose and Usage: A savings account is ideal for saving emergency funds and keeping money safe, whereas a current account is for business purposes.
Withdrawal and Deposits Restrictions: Withdrawals and deposits are limited for savings accounts and unlimited for current accounts,
Overdraft facility availability: Overdraft facility is unavailable with a savings account but available for current accounts.
Transaction limit and fees: Savings accounts allow limited transactions, therefore, attracting lesser fees than current accounts, which have unlimited transactions.
Required balance: Savings accounts have a minimum required balance. Current accounts don't have a minimum balance requirement.
Usage: Usually, savings accounts are for regular transactions or salary credit, whereas current accounts are for paying bills and performing business transactions.
Suitability: Savings accounts are ideal for individuals, whereas current accounts are ideal for businesses and business owners.

Importance Of Understanding the Differences

When opening a bank account, you have to compare different types of accounts to find the one that best suits your needs. In this case, you will need to compare current vs savings accounts. Understanding the difference between the current account and savings account will ensure you make a well-informed decision.

For example, you are a small business owner, but instead of opening a current account, you open a savings account. As a result, you will experience limitations in your transaction, meaning the number of transactions will be pre-decided. It can reduce your business productivity and, ultimately, your revenue.

Features of Savings Account

The features of a savings account may vary from one bank to another. While this is true, some things remain the same across all banks. Below are some of the features of a savings account.

Definition and purposes: A savings account is a type of account meant to help individuals save money. Its main goal is to enable individuals to save for emergencies, receive their salary and keep their money safe.
Interest Rates: The interest rate on savings accounts may vary from bank to bank. But it mainly ranges between 2.5% and 4% interest annually.
Withdrawal and Deposit Limitations: Most banks allow a maximum of three to four withdrawals per month and do not limit the number of deposits.
Account Fees and Charges: Generally, savings accounts are low-cost accounts. But some banks may charge maintenance fees or penalties for non-maintenance of a minimum account balance.

Features of a Current Account

The features of a savings account may vary from one bank to another. While this is true, some things remain the same across all banks. Below are some of the features of a savings account.

Definition and purposes: A savings account is a type of account meant to help individuals save money. Its main goal is to enable individuals to save for emergencies, receive their salary and keep their money safe
Interest Rates: The interest rate on savings accounts may vary from bank to bank. But it mainly ranges between 2.5% and 4% interest annually.
Withdrawal and Deposit Limitations: Most banks allow a maximum of three to four withdrawals per month and do not limit the number of deposits.
Account Fees and Charges: Generally, savings accounts are low-cost accounts. But some banks may charge maintenance fees or penalties for non-maintenance of a minimum account balance.

How to Choose Between a Current Account and a Savings Account?

The choice between a current account and a savings account depends on your financial needs. A savings account is ideal if you want to save money, build an emergency fund, or achieve financial goals, as it offers interest on deposits but has limited transactions.

A current account, however, is better suited for daily financial activities like bill payments, purchases, or managing business income. It provides high liquidity and flexibility, making it suitable for frequent transactions or business use.

Ultimately, the decision also hinges on the applicable fees and interest rates.

Choosing The Right Account For Your Needs

Financial goals
Define short- and long-term goals. Choose savings for gradual growth and safety; choose current for business cash-flow management.
Transactional requirements
High-volume daily transactions favour current accounts. Personal, occasional transactions suit savings accounts.
Interest rates
Compare rates across banks. Note how often interest is calculated and credited to optimise returns.
Minimum balance and fees
Assess your ability to maintain minimum balances and compare transaction, maintenance, and penalty charges across banks.
Account flexibility
Look for online banking, mobile apps, and other digital tools that improve convenience and control.

Also Read: Reactivate an Inactive/Dormant Savings Account

FAQs on Current Account and Savings Account

1. Which is better: a Savings Account or a Current Account?

The choice depends on your financial needs. A savings account is better for saving money and earning interest, while a current account is ideal for frequent transactions and business purposes.

2. What is the difference between a Current Account and a Savings Account limit?

Savings accounts usually have limited withdrawals, whereas current accounts have no transaction limits.

3. Can we have both Current and Savings Accounts?

Yes, you can hold both a current account and a savings account to meet different financial needs, such as saving money and managing daily transactions.