Banks are institutions that provide us the facility to deposit our money with them for safekeeping, and ease of managing money. You can open a bank account and keep your money there through direct deposits made physically or through electronically transmitted money. You can use your bank accounts for receiving and sending money through different methods, including cheques, online transfers and demand drafts.
Banks offer its customers two types of bank accounts: savings account and current account/checking account. In this article, we will know what is a current account and what is a savings account. We will also know the difference between a current account and a savings account.
Savings Account
For the general public, banks provide an account that they can use for keeping their money safe. As the name suggests, savings bank accounts are primarily for the purpose of keeping their savings safely deposited. Only individuals and Hindu Undivided Families (HUFs) can open a savings account in India.
A savings account is a deposit account held with a bank that serves as a tool for keeping your savings safe while earning an interest on the deposited money. The interest earned on savings accounts are small.
Currently, Indian banks are required to offer a minimum interest of 4% per annum on the deposits held in savings accounts. The interest is calculated on a daily basis on the money held with the bank. The interest amount is generally credited on a quarterly basis.
Indian banks are free to offer a higher interest on savings account deposits, but only few banks offer higher interest. With more banks in the Indian financial ecosystem, the competition should encourage banks to offer a higher interest rate on savings account deposits.
Savings accounts have certain restrictions in terms of the number of deposits and withdrawals allowed. Banks also require a certain minimum balance to be maintained in such accounts, failing which banks charge a penalty.
The interest earned on savings accounts is taxable. However, interest earned up to Rs 10,000 in a financial year on savings bank accounts is exempted from tax from the financial year 2012-13. Though such interest up to Rs 10,000 in a financial year is exempt from tax, it has to be reported in your income tax return.
Current Account (Checking Account)
Banks offer current accounts to customers such as businessmen and companies. Commonly known as a checking account in the US, bank current accounts are deposit accounts that allow unlimited withdrawals and deposits. However, banks do not offer any interest on the deposits held in such accounts. Also, banks generally charge a fee for maintaining current accounts.
Unlike savings accounts, current accounts have no limitations on deposits and withdrawals. Such accounts are also used for electronic money transfers in bulk, automated methods. For instance, companies with large number of employees credit salaries through automated systems linked to their current bank accounts.