For a small business, it seems simpler to continue personal savings bank account for business transactions. However, usually with one bank account, personal and business finances just get jumbled up. A savings bank account helps you park your savings, earn interest on it, as you carry out basic transactions. But saving bank account has many limitations for a business for which Current account is suited. The current account is recommended for businesses.  Such as the number of transactions or cash delivery or a business may be short of cash and requires a quick loan. So Overdraft facility of the current account is an alternative to personal loan. In this article, we shall talk about What are the features of the Current Bank account? What are the limitations of Saving Bank account?  What are the differences between Saving and Current Bank Account?

Limitations of Saving Bank Account

Savings Bank Account is the most common account used by individuals for saving purposes.  Savings accounts help you park your savings, offer easy access to the cash through ATM, earn a higher interest rate on it, all the while enabling you to carry out transactions. But there are limitations of Savings Bank Account.

• Requires you to maintain a minimum balance. Bank accounts will have to retain a minimum Monthly Average Balance (MAB) or Quarterly Average Balance (QAB). if the balance is not maintained then the penalty is charged.
• Offers you an annual interest between 3.5% and 6%.
• A limit on the number of free transactions (about 3-5 in a month).
• Chargeable Services like a chequebook or deposit. You can only issue limited (around 25/30) free cheques in a year with a Savings bank account.

What is Current Account

A business has many transactions withdrawing money for payments to vendors, depositing money from customers. Many a time, the number of cheque leaves are not sufficient for a businessman.  And many times a business requires money more than the existing balance in the account for a small-time period. Hence it is recommended that one holds a Current account.

The current account is also known as Demand Deposit Account.

Features of a Current Account

• One must maintain a higher minimum balance.
• There is No interest on the minimum balance in the current account.
• No limit on the number of free transactions.
• Overdraft facility is available. If one is short of funds, one can withdraw more. The bank treats it as a loan and sanctions a specific overdraft limit so you can withdraw up to that limit. You must pay interest only on the amount overdrawn. This is important for working capital for businesses.
• Other banking services like chequebooks, deposits etc., are free.

To understand this better, you can read about the features of Yes Bank current account

Current Account Benefits

Why have a Separate Account for Business?

Many freelancers, self-employed or sole proprietors use personal savings bank account for business transactions. But in such a case, personal and business expenses are together. You may find yourself spending hours going through the past year’s transactions to find business expenses and earnings. Often it does not give a correct picture of how a business is doing.

Having separate accounts streamlines your recordkeeping which saves you time. A Business Bank Account Helps You Stay Organized which a big help during Tax Time or answering Income Tax Department questions. Having a business bank account can help make your case to the Income Tax department that you are indeed running a business and are entitled to deduct your business expenses should you ever be audited.

A Business Bank Account Appears more professional. It proves the business seriousness in conducting transactions It also assists creditors of the account holder on the account holder’s credit-worthiness.

if you’re running your business as a sole proprietorship, you don’t legally need a separate bank account for your business but it is a good idea that small business, freelancers, self-employed or sole proprietors have a separate account preferably current.  If you employ at least 4 people, getting a current account is recommended. It is more flexible and offers several services like overdraft pick-up, and delivery of cash etc.

Documents required for opening a Current account

Documents required for opening a current account depends on the type of business, run by an individual or Sole proprietorship or partnership or private company.

Documents required for an individual for opening a Current Account

• Identity Proof
• Address Proof
• Recent Photograph
• PAN (PAN Form 49/ Form 60 if you have applied for a PAN)
• A Cheque from an existing savings bank account.

Documents required for Partnership Firm for opening a Current Account

• List of beneficial owners (those with more than 15%in the firm on companies’ letterhead)
• Recent photographs of authorized signatories
• Identity & Address proofs of authorized signatories
• Address proof
• Mobile number, e-mail ID
• Permanent Account Number (PAN)

How to choose a Current Bank Account

A Current account can be opened in most of the commercial banks and you should consider the following factors.

• Location: All the Banks provide internet banking, mobile banking and good ATM network/bank network. You should choose an account which is near your residence or business so it easier to visit the bank to maintain a good relationship with the bank staff or if any problem comes up.
• Minimum Average Monthly Balance: Consider the bank which a lower limit for Average Monthly Balance.
• Over Draft Limit: Find the overdraft limit offered by the bank and the ability of a bank to arrange for an overdraft with an agreed limit.
• Service Charges: Look at the service charges of various services such as cheque book facility, online fund transfer, demand draft, debit card etc.
• Personalized Services: Consider the personalized services such as advisory, tax, forex and consulting offered by the bank. Choose bank offering premium services if cost is not a concern.

Difference between Savings and Current Accounts

The table below shows the difference between Savings and Current Account.