Current Account

What is Current Bank Account ? Its Features and Advantages

Meaning of Current Bank Account

Current bank account is opened by businessmen who have a higher number of regular transactions with the bank. It includes deposits, withdrawals, and contra transactions. It is also known as Demand Deposit Account.

Current account can be opened in co-operative bank and commercial bank. In current account, amount can be deposited and withdrawn at any time without giving any notice. It is also suitable for making payments to creditors by using cheques. Cheques received from customers can be deposited in this account for collection.

In India, current account can be opened by depositing Rs.5000 (approx. US $ 100) to Rs. 25,000 (approx. US $ 500). The customers are allowed to withdraw the amount with cheques, and they usually do not get any interest. Generally, current account holders do not get any interest on their balance lying in current account with the bank.

Current account holder get one important advantage of overdraft facility.

Open Saving Account

1. Approach any Bank of choice & meet its Bank Officer – Once the type of account is decided, the person should approach a convenient bank. He has to meet the bank officer regarding the opening of the account. The bank officer will provide a proposal form (Account Opening Form) to open bank account.
2. Fill up Bank Account Opening Form – Proposal Form – The proposal form must be duly filled in all respects. Necessary details regarding name, address, occupation and other details must be filled in wherever required. Two or three specimen signatures are required on the specimen signature card. If the account is opened in joint names, then the form must be signed jointly. Now a days the banks ask the applicant to submit copies of his latest photograph for the purpose of his identification.
3. Give References for Opening your Bank Account – The bank normally required references or introduction of the prospective account holder by any of the existing account holders for that type of account. The introducer introduces by signing his specimen signature in the column meant for the purpose The reference or introduction is required to safeguard the interest of the bank.
4. Submit Bank Account Opening Form and Documents – The duly filled in proposal form must be submitted to the bank along with necessary documents. For e.g. in case of a joint stock company, the application form must accompany with the Board’s resolution to open the account. Also certified copies of articles and memorandum of association must be produced.
5. Officer will verify your Bank Account Opening Form – The bank officer verifies the proposal form. He checks whether the form is complete in all respects or not. The accompanying documents are verified. If the officer is satisfied, then he clears the proposal form.
6. Deposit initial amount in newly opened Bank Account – After getting the proposal form cleared, the necessary amount is deposited in the bank. After depositing the initial money, In the case of current account, a cheque book and a pay in slip book is issued.

Features of Current Bank Account

The main features of current account are as follows:-

1. Current bank accounts are operated to run a business.
2. It is a non-interest bearing bank account.
3. It needs a higher minimum balance to be maintained as compared to the savings account.
4. Penalty is charged if minimum balance is not maintained in the current account.
5. It charges interest on the short-term funds borrowed from the bank.
6. It is of a continuing nature as there is no fixed period to hold a current account.
7. It does not promote saving habits with its account holders.
8. Banker requires KYC (Know your Customers) norms to be completed before opening a current account.
9. The main objective of current bank account is to enable the businessmen to conduct their business transactions smoothly.
10. There is no restriction on the number and amount of deposits.
11. There is also no restriction on the number and amount of withdrawals made, as long as the current account holder has funds in his bank account.
12. Generally, bank does not pay any interest on current account. Nowadays, some banks do pay interest on current accounts.

Advantage of Current Bank Account

The advantages of current account are as follows:-

1. Current account is mainly opened for businessmen such as proprietors, partnership firms, public and private companies, trust, association of persons, etc. that has a large number of daily banking transactions, i.e. receipts and/or payments.
2. It enables businessmen to carry out their business transactions properly and promptly.
3. The businessmen can withdraw from their current accounts without any limit, subject to banking cash transaction tax, if any levied by the government.
4. Home branch is that location where one opens his bank account. There are no restrictions on deposits made in the current account opened in a home branch of a bank. However, the current account holder can deposit the cash from any other branch of a bank other than the home branch by paying a nominal charge as applicable.
5. It helps businessmen to make a direct payment to their creditors by issuing cheques, demand-drafts or pay-orders, etc.
6. It enables a bank to collect money on behalf of its customers and credits the same in their customers’ current accounts.
7. It enables the current account holder to obtain overdraft (short-term borrowing) facility.
8. The creditors of the account holder can get credit-worthiness information of the account holder through inter-bank connection.
9. It facilitates the industrial progress of the country. Without its help, businessmen would face difficulties in running their businesses.
10. It has the facilities of Internet-banking and mobile-banking to carry out important business transactions with ease and quickly.
11. It also provides various other advantages (benefits) such as:
    1. Deposit and withdrawal of money (cash) at any location.
    2. Multi-location funds transfer,
    3. Electronic funds transfer,
    4. Periodical (monthly, quarterly or yearly) e-mail or download of bank statements in various formats like ‘.XLS’, ‘.TXT’, ‘.PDF’, etc.
    5. Support from customer care executives.

Traps of Holding Current Account in India

In India, current account traps share many similarities with those in other countries, but there are some specific concerns that are relevant to the Indian banking system. Here are the most common traps associated with current accounts in India:

1. Overdraft Fees:

• Trap: Many current accounts in India offer overdraft facilities, but if you overdraw your account, you can face hefty penalties and high interest rates on the borrowed amount.
• Solution: Ensure you have adequate funds in your account or maintain a sufficient buffer. Be aware of your overdraft limit and charges.

2. Monthly/Annual Maintenance Fees:

• Trap: Several Indian banks charge maintenance fees for current accounts, especially if your balance falls below the prescribed minimum average monthly balance (AMB).
• Solution: Opt for fee-free current accounts or choose banks that waive the charges if you meet certain conditions, like maintaining a higher balance or making regular transactions.

3. Minimum Balance Requirement:

• Trap: Many banks in India require you to maintain a minimum balance in your current account to avoid monthly fees. If you fail to meet this minimum, you may be charged a penalty.
• Solution: Choose accounts with low or no minimum balance requirements, or make sure to regularly check your balance to avoid penalties.

4. ATM Withdrawal Fees:

• Trap: Some Indian banks charge fees for withdrawing money from ATMs outside their network or if you exceed the free transaction limit.
• Solution: Use ATMs from the same bank or choose a bank with a wide network of free ATMs. You can also check if your account offers more free transactions.

5. Cheque Bounce Penalties:

• Trap: If a cheque issued from your current account bounces (due to insufficient funds or technical errors), banks in India charge penalties and may also penalize the payee.
• Solution: Always ensure your account has sufficient funds to cover any cheques issued or opt for electronic transactions for convenience.

6. High Charges for Foreign Transactions:

• Trap: Current accounts that involve international transactions, such as foreign currency withdrawals or online payments, often carry high foreign transaction charges.
• Solution: Look for current accounts that offer lower or no fees on international transactions, or consider using a forex card for foreign exchanges.

7. Charge for Paper Statements:

• Trap: Many Indian banks charge for paper statements, especially if you don’t opt for electronic statements. This is a common fee for current accounts.
• Solution: Switch to e-statements to avoid unnecessary charges.

8. Unclear Terms and Conditions:

• Trap: Some banks may hide certain charges or penalties in the fine print, which you may not realize until it’s too late (e.g., transaction limits, withdrawal restrictions).
• Solution: Always read the terms and conditions carefully when opening a current account, and clarify any doubts with the bank.

9. Charges on Unused Accounts:

• Trap: Some banks charge an inactivity fee if a current account remains dormant for a certain period (typically 6 months to 1 year).
• Solution: Regularly use the account, or close it properly if you no longer need it to avoid charges.

10. Service Tax and GST on Transactions:

• Trap: Service taxes and GST are applied on certain financial transactions, such as ATM withdrawals, cheque book issuance, or account maintenance. These taxes can accumulate over time.
• Solution: Be mindful of these additional charges and check if your bank offers accounts with fewer taxable services or fee waivers.

11. Charges on Demand Drafts/NEFT/RTGS:

• Trap: Banks may charge fees for services like issuing demand drafts, making NEFT (National Electronic Funds Transfer), or RTGS (Real-Time Gross Settlement) payments, which are often used for business transactions.
• Solution: Look for accounts that offer fee waivers for these services, or use digital banking services that may offer free or low-cost transactions.

12. ATM Withdrawal Limits:

• Trap: Some current accounts in India have daily withdrawal limits, either for ATM withdrawals or point-of-sale (POS) transactions, which can be inconvenient if you need to withdraw large amounts.
• Solution: Check the withdrawal limits of your account and, if necessary, request an increase or choose an account with higher withdrawal limits.

13. Fees for Not Maintaining Average Monthly Balance (AMB):

• Trap: If you fail to maintain the required AMB (usually ranging from ₹10,000 to ₹100,000 for many banks), banks can impose hefty penalties.
• Solution: Maintain the minimum balance required to avoid penalties, or choose accounts with no AMB requirements.

14. Hidden Charges on Digital Transactions:

• Trap: Some digital banking transactions, such as online bill payments or mobile banking transfers, may come with hidden charges, especially when using third-party apps.
• Solution: Review the charges for digital transactions and use your bank’s official mobile app or internet banking service to avoid third-party fees.

15. Limited Features in Basic Current Accounts:

• Trap: Basic current accounts in India may have fewer features or benefits, such as limited checkbook issuance, lower ATM withdrawal limits, and restricted transaction types, which may be insufficient for business needs.
• Solution: Choose a current account based on your needs—if you’re running a business, go for an account with more features and higher transaction limits.

Conclusion:

When choosing a current account in India, it’s important to thoroughly understand the terms, fees, and features of the account. Compare different banks to find one that best suits your needs, whether it’s for personal use, business transactions, or frequent international dealings. By staying aware of the potential traps and making informed decisions, you can avoid unnecessary fees and maximize the benefits of your current account.

Key Terms:

• Bank current account
,
• Business current account
,
• Checking account
,
• Corporate account
,
• Current account
,
• Current account features
,
• Current account fees
,
• Current account maintenance
,
• Current account services
,
• Current account transactions
,
• Multi-currency account
,
• No-interest account
,
• Online current account
,
• overdraft facility
,
• Zero balance current account

Disclaimer: The information provided here has been compiled from various sources to the best of our knowledge. While every effort has been made to ensure the accuracy of the details, there may be occasional errors or omissions. If you find any discrepancies or incorrect information, kindly inform us so we can make the necessary corrections. Thank you for your understanding and cooperation.