Bank Current account vs savings account meaning, opening documents procedur
Current bank accounts are very popular among companies, firms, public enterprises, businessmen who generally have a higher number of regular transactions with the bank. It is designed to suit the requirements of partnership firms, sole proprietors’ firms, individual self-employed professionals, start-ups, businessmen, business houses, traders, companies, enterprises, LLPs, entrepreneurs, etc.
These entities carry out regular financial transactions in their accounts hence Current Account is being offered to them as a convenient banking solution. The current account includes deposits, withdrawals, and contra transactions. Such accounts are also called the Demand Deposit Account.
A Current account can be opened in most of the commercial banks. Current Accounts usually do not have any cap on the maximum number of transactions and that is the reason why the customers need not worry about processing of their transactions in a smooth way. Almost all the banks in India provide their various current account products which suit the varied needs of different customers. To open a current account is very easy and hassle free.
A current account and a savings account differ from each other in many ways. The primary difference between the two is the purpose of the account. A savings account, as the name suggests, is designated to help you save. Whereas, a current account is designated to help you facilitate everyday transactions.
A current account being a zero-account, is generally associated with huge transactions regularly. Because of the fluidity that these accounts offer, they don’t earn any interest. These also usually do not carry a limit on the number of transactions which can be made. Since current account balances tend to fluctuate quite a bit depending on the cash needs of the business, banks usually do not deploy these funds.
However, the current account holders are treated differently. They are given a step-motherly treatment as compared to their savings account holder counterparts. When we look at all the facilities that the savings account holders get, the current account holders are surely left behind.
Unlike Savings Account, it does not earn any interest on money deposited in this account. This is the biggest disadvantage of having a current account. Customers lose the opportunity cost on their funds which could have generated some portion of interest if kept somewhere else. Some of the banks offer slight interest but it is very low.
A savings account, on the other hand, offers interest on funds deposited. Of course, this is not very high, ranging from 3.5-6% per annum, which might not even be enough to cover inflation. Interest is calculated on the daily outstanding balance. However, the interest earned is credited to your account not daily but every quarter or half-year.
Whenever current account holder needs any additional service, he/ she is required to pay a huge amount of money as service charges because service charges in the current account are very high as compared to those of a savings account.
Banks do keep a limit on the issuance of free chequebooks or demand drafts e.g. 25 numbers per month. If you want more than that, you need to pay extra money for that. Many banks keep a cap on free cash deposits & free cash withdrawals on monthly basis. After crossing that limit, one needs to pay the cost.
You need to keep a certain minimum balance in most accounts, except in those classified as zero-balance accounts. Generally, banks require their customers to keep a larger minimum balance in current accounts compared to savings accounts. Higher Amount of Monthly Account Balance is required to be maintained in a Current account. If you do not maintain the minimum account balance, you will have to pay the penalty levied by the bank.
The fine print and the paperwork involved in current account maintenance is comparatively more confusing and lengthier than that of other types of accounts such as savings account, fixed account, etc.
Some of the banks do not provide free transactions and they charge transaction fees on current account transactions. These transactions may involve online fund transfer, withdrawing money from other bank's ATM, etc.
Unlike Savings Bank Accounts, you cannot place standing instructions to make bill payments automatically in your current account.
For more than a decade, there was just one mantra on every Indian banker’s lips — CASA. It delivered loads of profits for private sector banks, and it even became part of the lexicon at state-run banks over the years. It has become so ubiquitous that banners in branches in rural India scream ‘Deposit Mobilisation Programme — CASA’ when the client who walks in may hardly know what CASA stands for. But suddenly the power of that mantra seems to be waning.
Banks should give special facilities to their current account holders since a majority of their business comes from these CASAs.
CASA stands for current accounts and savings accounts of customers in banks. These are two categories of accounts where the cost of funds is low and have become crucial for bank profitability. Current accounts, usually maintained by businesses, have no interest at all. Savings accounts, where the salaried class keeps its earnings, had meagre interest rates, at least till the time RBI freed up the rates.
A current account savings account (CASA) is aimed at combining the features of savings and checking accounts to entice customers to keep their money in the bank. It pays very low or no interest on the current account and an above-average return on the savings portion. CASA is most commonly used in West and Southeast Asia, though the CASA structure is available globally.
The CASA is a non-term deposit, meaning it is used for the everyday banking and savings needs of the consumer. This type of account does not have a specific maturity or expiration date, so it is valid for as long as the account holder needs it to remain open. This is in contrast to a term deposit, which is open for a certain period of time. After the maturity date, the bank or institution pays a certain amount of interest on the principal balance.
A CASA operates like a normal bank account in which funds may be utilized at any time. It combines both the checking and savings functions into one. Because of this flexibility, a CASA has a lower interest rate than a term deposit, in which money is set aside to be untouched for a specific time period with a guaranteed interest rate.
Most banks offer CASAs to their customers for free. In some cases, there may be a small fee, depending on certain minimum or average balance requirements. These types of accounts attempt to limit the disintermediation that occurs when bank deposit interest is lower than other available short-term investments. A CASA tends to be a cheaper way for a bank to raise money than issuing term deposits, such as certificates of deposit (CDs), which offer higher interest rates to the customers.
Financial institutions encourage the use of a CASA because it generates a higher profit margin. Because the interest paid on the CASA deposit is lower than on a term deposit, the bank’s net interest income (NII) is higher. Thus, CASAs can be a cheaper source of funding for banks.
Demand deposits like CASAs let customers exchange a higher rate of interest for higher liquidity by giving them immediate access to their funds. However, because of the uncertainty relating to when a depositor will withdraw funds, CASA funds should not be utilized by a bank for long-term financing.
As noted above, the current account portion of the CASA does not earn any interest. There are generally no limits on deposits or withdrawals. The savings account portion does not have any restrictions on the number of deposits an account holder can make. However, it typically has restrictions on the number of withdrawals a person can make. This is put in place in order to encourage account holders to save. The maximum number of withdrawals permitted varies by institution.
The percentage of total bank deposits that are in a CASA is an important metric to determine the profitability of a bank. The CASA ratio indicates how much of a bank’s total deposits are in both current and savings accounts. The ratio can be calculated using the following formula:
A higher ratio means a larger portion of a bank’s deposits are in current and savings accounts, rather than term deposit accounts. This is beneficial to a bank because it gets money at a lower cost. Therefore, the CASA ratio is an indicator of the expense to raise funds and, therefore, is a reflection of a bank’s profitability or likelihood of generating profit.
The existence of the CASA can be seen as a product of especially competitive or saturated markets, in which financial service companies have to create a steady stream of new products and features that differentiate them among different providers. As it stands, very few people agree that any market has one best bank. Globally, a large share of individuals believes all banks and financial institutions are roughly the same.
Current account holders need to be treated better by the banking system of the county for the businesses to perform better. The facilities need to be improved manyfold still and even though the banking system of the country is doing alright, they still have a long way to go.
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