Differentiating Current Accounts With Savings Accounts

One of the most common struggles of new businessmen is to identify which type of bank account would work best for them - current or savings. This is the very same dilemma I faced when I barged into the world of business. I understand the difficulty of deciding over these matters so as my way of helping young businessmen I put together what I have personally learned to help those who are making this important decision. So how are current accounts different from savings accounts?

A current account may be termed as checking account. It is meant to help businessmen, enterprises, firm, companies - those that have numerous transactions with the bank everyday. Current accounts do not earn high interest compared with savings accounts because they generally cater to the principal's need of convenience.

Generally, a current account holder is issued a checkbook so he can make withdrawals through the issuance of check. But these have evolved so that, now, they can also accommodate deposits (including paychecks); allow withdrawals either directly at the bank or through bank-issued debit cards; and allow transfer of funds to the holder's other accounts. Basically, current account holders can add and deduct money whenever they please without any hassle at all.

On the other hand, saving accounts are opened primarily for the purpose of "saving" money. Generally, people open this type of account to save some amount to defray unplanned and emergency financial requirements. Thus, it functions like a safety deposit box where the holder keeps his excess cash. Depending on the bank, charges may be imposed for withdrawals made to the account, but they are normally minimal in amount.

On another note, most banks require both types of accounts to maintain an average daily balance or ADB. But current accounts usually require higher maintaining balance compared with savings account to cover possible debits for issued checks. On both types of accounts, the bank will charge a certain amount whenever the cash balance falls below the required ADB. Both current and savings accounts also earn interests. Banks pay the holders interest for the money stored in the account.

In most cases, savings account holders are issued with savings passbook. The passbook documents the credits and debits to the account; i.e., deposits and interests earned, and withdrawals and taxes paid.

These are the basic differences (and similarities) between savings accounts and current accounts. The decision on whether to open a current or a savings account lies purely on the needs of the holder - whichever product serves his interest best.

Jason O. Joaquin is an accountant and freelance business consultant. Currently, he is employed as Internal Audit Manager in a group of companies in southern Philippines.