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.
Contents on This Page
This blog will give you a comprehensive understanding of the factors to consider and the practicalities involved in opening a savings account and a current account for your small business. So, whether you’re an entrepreneur, a startup, or an established small business, this blog will equip you with the knowledge necessary to choose between a savings account and a current account based on your specific business needs and goals.
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 the savings whenever needed. It is basically a deposit account offered by banks, credit unions, and other financial institutions with the primary purpose to provide a secure place to small businesses for storing 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.
Difference between Current Account and Savings Account for Small Business
This comparison chart provides a brief overview of the difference between savings and current account. Small businesses can use this chart as a starting point to determine which account aligns better with their specific needs, financial goals, and transactional requirements. It is important for businesses to consider these factors and evaluate how each account type can support their financial management and growth objectives.
| 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 it. So, let’s discuss the process of opening savings and current accounts further.
How to open a Savings or Current Account for Small Businesses?
Opening a savings account for your small business involves a straightforward process that can be completed in a few steps. The first step is to research and choose a bank that offers suitable savings account options for small businesses. Consider factors such as interest rates, fees, accessibility, and the bank’s reputation. Look for a bank that aligns with your business’s needs and offers the features and benefits you require.
Once you have selected a bank, gather the necessary documents for the account opening process. Make sure to have all the documents ready before proceeding further. Next, visit the bank branch or explore their online account opening options. If visiting the branch, approach a representative and express your interest in opening a business bank account. They will guide you through the account opening process and provide you with the necessary application forms to complete.
Complete the application forms with accurate and up-to-date information. Ensure that you provide all the required details and follow any instructions provided by the bank. This will help expedite the account opening process and minimize any potential delays. Once you have completed the forms, submit them along with the required documents to the bank representative. They will review your application and verify the information provided. Some banks may require an initial deposit to activate the account, so be prepared to make the required deposit if necessary.
After submitting your application and documents, carefully review the terms and conditions of the savings account agreement provided by the bank. Pay close attention to any fees, interest rates, withdrawal restrictions, or other relevant details. If you are satisfied with the terms, sign the agreement to finalize the account opening process. Finally, the bank will provide you with the account details, including the account number and any associated debit card or online banking credentials. You can use these details to start managing your funds, monitor transactions, and track your savings.
Documents Required for Opening a Savings or Current Account of Small Business
1. Business identification documents:
- Certificate of incorporation or registration
- Memorandum and Articles of Association (MOA and AOA) or partnership deed (if applicable)
- GST registration certificate (Goods and Services Tax)
2. Proof of identity for authorized signatories:
- PAN (Permanent Account Number) cards of authorized signatories
- Aadhaar card (optional, but often required)
3. Proof of identity for authorized signatories:
- 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
Conclusion
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.