What is current account and how to open one?

A current account is a bank account from which you can deposit and withdraw money without notice. Most banks offer various current accounts with different features, so you can find the one that is right for you.

 

What is a current account?

Businessmen who frequently conduct transactions with their bank are likely to open a bank current account. The account can be used for deposits withdrawals, and counter-transactions. This type of account is also known as demand deposit account.

You can open a current account at a cooperative or commercial bank. Current accounts are ideal for making payments to creditors using cheques received from customers that can be deposited in this account for collection.

An Indian current account can be opened by depositing a minimum of Rs 5,000 to a maximum of Rs 25,000. Customers can withdraw the amount using cheques and usually do not receive interest on their withdrawals. As a general rule, bank current account holders do not get any interest on their balances.

 

Check out: Know IFSC full form

See also: How to open an SBI Savings Account?

 

Features of a current account

To start a business, you will need a bank account. A current account has the following basic characteristics:

• Unlike a savings account, current accounts allow transactions beyond those permitted by savings accounts.
• With a current account, the account holder can avail of overdraft facility up to a certain agreed limit.
• A current account’s minimum balance is higher than that of a savings account.
• Transferring funds and receiving cheques and cash are just a few of the frequent transactions it facilitates.
• An individual can operate a current account, as well as private or public companies, associations, trusts, etc.
• Transactions are not limited in number in a day.
• Penalties can be imposed for the non-maintenance of minimum balances.
• Current accounts must also follow KYC guidelines, just like savings accounts.
• There cannot be more than one current account for a single business.
• Businesses use current accounts to facilitate smooth transactions.
• Some banks now also offer interest on current accounts.
• The account holder pays interest on short-term funds borrowed from the bank.

 

Advantages of current account

• The use of current accounts makes it possible to handle large volumes of receipts and/or payments in a systematic manner.
• Cash transaction fees are levied on these accounts, which allow limitless withdrawals.
• Deposits made into current accounts opened at the bank’s home branch are not subject to restrictions. Cash can also be deposited at other branches by paying small fees.
• Direct payments to creditors can be made using cheques, pay orders, or demand drafts from a current account.
• For current account holders, overdraft facilities are also available.
• Current accounts are more attractive to users when they earn small interest earnings.
• Businesses get various benefits, such as free inward remittances, deposits and withdrawals at any location, and multi-location transfers, among others.
• There are no limits on the withdrawals businessmen can make from their current accounts, subject to any banking cash transaction tax levied by the government.
• Provides information on the creditworthiness of the account holder to creditors via interbank connections.
• Businessmen can conduct important business transactions quickly and easily with Internet banking and mobile banking.

See also: All about Demat account

 

Types of current account

To cater to the varying needs of their customers, banks offer different types of current accounts. The type of account best suited to the kind of transactions one wishes to conduct should be chosen. It should be noted, however, that different banks may have different types of current accounts.

Standard current accounts

A minimum average monthly balance is required for this type of account. Interest is not paid on deposits. The bank offers its customers several services, such as cheque books, debit cards, and overdraft facilities.

Basic current accounts

The product is ideal for customers with low wages, such as pensioners, young people, etc. It simplifies managing finances for them. There are, however, some limitations on the amount of cash that can be withdrawn each day.

Premium current accounts

Customers can benefit from exclusive offers and benefits when they open this type of account. Large transactions are best performed using this account.

Packaged current accounts

The account holders of this current account type enjoy many perks and benefits, such as travel insurance and medical support.

Foreign currency accounts

NRIs or individuals who frequently transact in foreign currencies can open foreign currency accounts.

See also: Escrow meaning: What is an escrow account

 

How to open a current account online?

1. Visit the official bank’s website and obtain the online current account opening form.
2. Fill out the personal details, account details and other sections with all the necessary information.
3. Take a printout of the filled-out current account application form.
4. Visit the nearest branch of the bank and submit the completed form and all the required KYC documents.

It is also possible to fill out the application form offline by visiting the nearest bank branch with all the necessary documents. It should be noted that the steps may vary from bank to bank.

See also: Trading account: Everything you need to know

 

Documents required to open a current account

To open a current account with your bank, you will need to provide the following documents:

• PAN card.
• Address proof.
• A certificate of incorporation and a memorandum of association must be submitted by companies and trusts
• An agreement between partners in a partnership firm.
• A copy of each partner’s ID and proof of residence is required.
• The applicant(s) should submit a colour photograph.
• For account opening, use a savings account cheque.
• Communication addresses should be provided by companies.

Make sure you submit KYC documents that are valid as of the date of submission.

Check out: Read about Union Bank IFSC code 

 

Current account: Monthly average balance requirement 

The monthly average balance (MAB) requirement for a current account can vary based on the bank, account type, and location. Generally, current accounts have higher minimum balance requirements due to increased transaction activity. In India, MAB for a current account can range from Rs 5,000 to Rs 1 lakh or more, depending on the bank and account type. Some banks offer zero balance accounts for startups or small businesses, but with transaction limitations. Not maintaining the MAB may result in penalties, ranging from nominal charges to a percentage of the shortfall. It’s advisable to check with the bank for specific requirements and terms before opening an account.

 

FAQs

How is a current account different from a savings account?

A current account is designed for high-volume transactions and is suitable for businesses and individuals with frequent banking needs. In contrast, a savings account is typically used for saving money and earns interest on the balance.

Can I earn interest on funds in a current account?

Unlike a savings account, current accounts usually do not offer interest on the deposited funds. Their primary purpose is to facilitate transactions and provide convenient banking services.

Who should consider opening a current account?

Businesses, self-employed individuals, professionals and organisations that require frequent banking transactions, manage cash flow, and make regular payments to suppliers or employees should consider opening a current account. It provides easy access to funds and efficient financial management tools.