Savings Account vs Current Account for your Small Business

  • Setindiabiz Team
  • January 12, 2024
Savings Account vs Current Account for Your Small Business

Choosing the right bank account is a crucial decision for small businesses as it can significantly impact their day-to-day financial operations and long-term growth. Interestingly, when it comes to deciding between savings accounts and current accounts, small business owners often find themselves at a crossroads. So, in this blog, we will compare savings account vs current account for your small businesses in great depth and detail, so that you can make an informed choice whenever needed.

BRIEF SUMMARY
A small business typically utilizes both current and savings accounts to manage its finances. A current account serves as the primary operational account, facilitating daily transactions such as payments, receipts, and payroll. It usually offers features like check-writing, debit cards, and overdraft facilities to meet the business’s immediate financial needs. On the other hand, a savings account is employed to accumulate surplus funds and earn interest over time. It provides a secure place for the business to save excess funds while maintaining liquidity. While current accounts focus on day-to-day transactions, savings accounts are geared towards fostering financial growth through interest accrual on the idle cash reserves. The two accounts complement each other, addressing both short-term operational requirements and long-term financial goals for a small business.

Key Features of Savings Account for Small Businesses

A savings account is a type of bank account designed to help small businesses save money, with the option to access savings whenever needed. It is a deposit account offered by banks, credit unions, and other financial institutions with the primary purpose of providing a secure place for small businesses to store their funds while earning a modest amount of interest. Here are some of the key features and benefits of Savings Accounts for Small Businesses!
1. Interest Earnings:
  • Savings accounts typically offer interest on the deposited funds, allowing businesses to earn some return on their savings over time.
  • While savings account interest rates might be relatively low compared to other investment options, they still provide an opportunity to generate passive income.
2. Safety and Security:
  • Savings accounts are typically insured by government-backed deposit insurance schemes, providing businesses with a level of protection against bank failures.
  • This makes them a secure option for storing business funds, giving peace of mind to small business owners.
3. Accessibility and Liquidity:
  • Savings accounts generally offer easy access to funds through methods such as online banking, ATMs, and branch visits.
  • This accessibility ensures that businesses can readily access their money when needed, providing liquidity for day-to-day operations or unexpected expenses.
4. Limitations and Restrictions of Savings Accounts:
  • Transaction Limits: Savings accounts often come with certain limitations that small business owners should consider before going for it. For instance, Savings accounts may impose restrictions on the number of transactions allowed per month. Exceeding these limits may result in additional fees or conversion to a current account.
  • Minimum Balance Requirements: Financial institutions may require a minimum balance to be maintained in the savings account to avoid fees or earn the advertised interest rate.
  • Limited Transactional Features: Compared to current accounts, savings accounts generally have limited transactional capabilities, making them less suitable for frequent, day-to-day transactions.

Key Features of Current Account for Small Business

A current account is a type of bank account specifically designed to facilitate day-to-day financial transactions of small businesses. It is basically a transactional bank account that allows businesses to manage their regular financial activities by providing a convenient and flexible platform to receive and make payments, manage cash flow, and handle various financial transactions. Here are some key features and benefits of Current Accounts for Small Businesses!
1. Transactional Capabilities:
  • Current accounts are specifically designed to offer a wide range of transactional capabilities, making them suitable for day-to-day business operations.
  • They provide features such as check writing, electronic fund transfers, debit card usage, and online banking, allowing businesses to conveniently send and receive payments.
2. Access to Credit and Overdraft Facilities:
  • Unlike savings accounts, current accounts often provide businesses with access to credit facilities such as business overdrafts or lines of credit.
  • These credit options can help small businesses manage cash flow fluctuations or meet unexpected expenses.
3. Flexibility and Convenience:
  • Current accounts offer flexibility in managing finances by providing easy access to funds through various channels, including online banking, ATMs, and branch visits.
  • Businesses can efficiently track and monitor their transactions, set up automated payments, and streamline their cash management processes.
4. Limitations and Restrictions of Current Accounts:
  • Fees and Charges: Current accounts may come with various fees and charges, such as monthly maintenance fees, transaction fees, and overdraft fees. Small businesses should carefully review the fee structure and consider the potential costs associated with maintaining a current account.
  • Limited Interest Earnings: Unlike savings accounts, current accounts typically offer minimal or no interest on the deposited funds. Small businesses seeking interest earnings may need to explore alternative investment or savings options.
  • Account Requirements and Minimum Balances: Financial institutions may have specific requirements and minimum balance criteria for opening and maintaining a current account. Small businesses should consider these requirements and ensure they can meet the necessary criteria.

Savings Account vs Current Account for Small Business

The comparison table below provides a brief overview of savings accounts vs current accounts for small businesses. You can use the table as a reference point to determine which account aligns better with the specific needs of your business, financial goals, and transactional requirements. These factors must be considered while evaluating how each type of account can support the growth objectives of your business.
Features Savings Account Current Account
Purpose
Help small businesses save money with some accessibility
Facilitate day-to-day financial transactions and cash management
Interest Earnings
Moderate interest rates on deposited funds
Minimal or no interest on the deposited funds
Safety and Security
Insured by deposit insurance schemes
Insured by deposit insurance schemes
Transactional Capabilities
Limited transactional features
Wide range of transactional capabilities
Access to Credit
Generally does not provide access to credit facilities
Access to credit facilities like overdrafts or lines of credit
Fees and Charges
Minimal fees and charges
Various fees and charges, such as monthly maintenance fees
Account Requirements
May have minimum balance requirements
May have minimum balance requirements
Suitability
Ideal for savings, infrequent transactions, and earning interest
Suitable for day-to-day transactions and cash management
Once you are done comparing the two accounts and choosing which one suits the needs of your small business the best, you would like to open one, isn’t it? So, let’s discuss the process of opening savings and current accounts further.

Processes for Opening Current Account vs Savings Account India

Opening a savings or current account for your small business in India involves several straightforward steps. You must research and select a bank that suits your business needs, considering factors such as interest rates, fees, accessibility, and reputation. Once you’ve chosen a bank, further steps involve gathering the necessary documents before initiating the account opening process. The detailed steps below will guide you through!

Step 1: Research and Choose a Bank

Research various banks to identify one that suits your business requirements. Consider factors such as the bank’s reputation, branch accessibility, fees associated with the account, interest rates offered, and any additional services or features that align with your business needs.

Step 2: Gather Necessary Documents

Ensure you have all the required documents ready. Common documents include your business registration certificate, PAN card, identity and address proof of business owners, and proof of business address. Check with the chosen bank for specific document requirements.

Step 3: Visit the Bank or Explore Online Options

If opting for a physical visit to the bank, approach a customer service representative or business account manager. If the bank offers online account opening, explore their website or mobile app to initiate the process.

Step 4: Complete Application Forms

Once at the bank or online, fill out the application forms accurately. Provide details about your business, its structure, and the individuals associated with the account. Follow any instructions provided by the bank and double-check the information for accuracy.

Step 5: Submit Forms and Documents

Submit the completed application forms along with the necessary documents to the bank representative. If applying online, follow the instructions for document submission, either through digital uploads or in-person verification.

Step 6: Review Terms and Conditions

Carefully review the terms and conditions of the savings or current account agreement. Pay attention to details such as account maintenance fees, transaction charges, interest rates, minimum balance requirements, and any restrictions on withdrawals or transfers.

Step 7: Sign the Agreement

If you are satisfied with the terms outlined in the agreement, sign the document to formalize the account opening process. Your signature indicates your understanding and acceptance of the terms and conditions.

Step 8: Receive Account Details

Once the bank approves your application, they will provide you with the account details. This includes the account number, relevant account documents, and any associated items such as a debit card or online banking credentials. Safely store this information for future reference.

Documents Required for Opening Savings vs Current Account of Small Business

Submitting the required documents is crucial when opening a savings or current account for a small business in India. These documents establish the business’s identity, verify the identity of authorized signatories, and provide proof of the business’s registered office and signatories’ addresses. Failure to submit these documents may result in delays in the account opening process or even rejection of the application. It is essential to adhere to the document submission requirements to ensure a smooth and successful account opening, meeting regulatory and compliance standards. The list below will help you in this endeavour.
1. Business identification documents:
2. Proof of identity for authorized signatories:
  • PAN (Permanent Account Number) cards of authorized signatories
  • Aadhaar card (optional, but often required)
3. Proof of address:
  • Registered office address proof (e.g., electricity bill, telephone bill, lease agreement, etc.)
  • Address proof of authorized signatories (e.g., passport, Aadhaar card, driver’s license)
4. Passport-size photographs of authorized signatories
5. Business PAN card (if available), else submit Form 60
6. Bank account statement or canceled cheque of any existing business account
When deciding between a savings account and a current account for your small business, it’s essential to consider your specific needs. A savings account offers higher interest rates, making it ideal for businesses looking to save and grow their funds over time. It’s suitable for those with surplus funds they don’t need immediate access to. On the other hand, a current account is designed for day-to-day transactions, with features like checkbooks and debit cards. It offers convenience and flexibility, making it a good choice for businesses with frequent transactions and the need for easy access to funds. Assess your business’s cash flow, savings goals, and transaction requirements to determine which account aligns best with your financial objectives.

When choosing between a savings account vs current account, it's essential to consider your business needs. A savings account offers higher interest rates, making it ideal for businesses looking to save and grow their funds over time. It's suitable for those with surplus funds they don't need immediate access to. On the other hand, a current account is designed for day-to-day transactions, with features like checkbooks and debit cards. It offers convenience and flexibility, making it a good choice for businesses with frequent transactions and the need for easy access to funds. Assess your business's cash flow, savings goals, and transaction requirements to determine which account aligns best with your financial objectives.

Conclusion

FAQs

Q1: What is the primary difference between savings account vs current account?

A savings account in India is designed for individuals and small businesses to encourage savings, offering interest on deposits with certain withdrawal restrictions. On the other hand, a current account is tailored for businesses with frequent transactions, providing features like check-writing and overdraft facilities but typically not offering interest on deposits.

Q2: Can a small business hold both a savings account and a current account simultaneously?

Yes, small businesses in India can maintain both a savings account and a current account. While a savings account is suitable for accumulating funds and earning interest, a current account is ideal for day-to-day transactions, offering more flexibility in managing operational finances.

Q3: What are the key documents required for opening a current or savings account?

To open a current account in India, a small business needs essential documents such as the certificate of incorporation, MOA and AOA or partnership deed, GST registration certificate, PAN cards of authorized signatories, proof of business address, and passport-size photographs of signatories.

Q4: Is there a minimum balance requirement for a savings account or current account?

Yes, savings accounts in India typically have a minimum balance requirement, varying across banks. Current accounts may also have minimum balance requirements, but they are generally higher than those for savings accounts. Non-maintenance of the minimum balance may attract penalties in both account types.

Q5: Can a savings account be converted into a current account and vice versa?

Yes, it is possible to convert a savings account into a current account or vice versa for a small business in India. However, the process and feasibility depend on the bank’s policies, and businesses should inquire with their respective banks to explore such account type conversions.

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