A current account is an important tool for the efficient handling of business operations. Find out how a current account syncs with basic financial rules.
What is a Current Account?
A current account can be opened in the name of an individual or business organization after completing the laid down formalities with a bank or financial institution. Opening up and functioning with a current account is perhaps the best option available to businessmen too. Let us find out a little more about the ways in which a current account works, and the pros and cons associated with the same.
Why are Current Accounts so Popular?
In general, current accounts can be held with both co-operative as well as commercial banks. If you are holding this type of account, you have the benefit of withdrawing and depositing cash amount at any time, and without any prior information to the bank. Use of cheques has also been made easy with current accounts as they can be deposited for collection without any hassles.
In India, the minimum amount required for opening up a current account is Rs. 5000 to Rs. 25,000. Hear, money withdrawals can be carried out with the help of cheques. Current account holders also receive the essential benefit of bank overdraft facility while transacting with this type account.
How Does a Current Account Function?
A current account features the facility of enabling direct payments for mortgage, bills and rent. In other words, the payments that are made on a regular basis are best activated via one’s current account. For instance, with the basic purpose of bringing efficiency into their business operations, businessmen or employers transfer wages to the current account for easy disbursals.
These are the way in which current account holders can make payments or withdrawals in convenient ways.
- Standing Order: A standing order is an instruction that is provided to the bank or financial institution by its account holder. The account holder instructs the bank to make a monthly payment amounting to a fixed value to a specific person. The holders possess the privilege of changing the amount to be paid after giving proper intimation to the bank or financial institution.
- Direct Debt: Direct debt means that customers may instruct the bank for paying an amount to the said party. In this case, unlike in standing order, the amount is not fixed. After the instruction, the person who is authorized to withdraw the amount from the bank can initiate the process after sending proper intimation to the account holder.
Pros and Cons of a Current Bank Account
The following is the list of advantages that are associated with a current account:
- A current account helps organizations / individuals carry out their business transactions rapidly and properly.
- Businessmen can enjoy unlimited withdrawals from their current accounts; this is subjected to the tax levied by the government with regards to bank transactions.
- Along with unlimited withdrawals, account holders also hold the right to deposit cash to the home branch without any restrictions. Do know that cash can be deposited from any other branch with the inclusion of a nominal charge as well.
- Creditors can evaluate the credit worthiness of account holders through inter-bank linkages.
- A current account is also associated with the facilities of online banking and mobile banking for conducting business transactions – easily and comfortably.
The disadvantages of holding a current account are listed below:
- Account holders earn very low or no interest on the account balance held by them.
- The services associated with a current account attract extra costs.
- Fine printing and paper working can be very confounded and lengthy at times.
- Corporate business houses are often charged with huge fees for holding current accounts.
- In certain cases, a limit on the amount to be withdrawn per day can be imposed by the bankers.
Wise Selection is Vital
While you are opting for a current account, it is well-advised that you aim for the most competitive interest rates. You should also search for low interest overdrafts facilities available with current accounts. Additionally, the preferential offers on loans have to be evaluated and opted for before freezing your selection of the most favorable current account.
So, choose wisely and be the ever-satisfied current account holder!