When you go to a bank in order to open a new bank account, you mainly have two options, either you can open a regular savings account, or you can choose to open a current account. Usually, in banks’ terminology, a current bank account is meant for businesses. But let’s say you are just starting out a business, and now you are wondering whether or not you even need such a bank account, right? Well, we are about to make things a lot clearer for you because here we will be diving deep into the possible advantages and disadvantages of a current account. So, if that’s what you are here for, then just keep on reading, here we go now.
Advantages of Current Accounts
1. Unlimited Transactions
One major advantage of a current account is the ability to make unlimited transactions each day. In short, this basically makes it easier for them when carrying out their businesses, considering that they have a consistent and high nature of transactions each day. Having a current account makes it easy for the transfer of funds, acceptance of payments, or management of cash deposits and withdrawals.
2. Flexible Deposit Options
A current account offers you a home branch with deposit facilities without any limit, which is like the prime concern of the business in huge cash dealings. There is no upper cap to worry about, so one may deposit as much as required without any concern. The other branches will, however, charge for making deposits, yet all in all, it means very flexible money handling. That would be very convenient to any business that has multiple locations, or the business owner is frequent for traveling related to business purposes.
3. Overdraft Facilities
Many current accounts offer an overdraft facility, acting as a financial safety net during times when cash flow is tight. To be able to withdraw funds even at zero balance to a certain limit, just in case there is a hiccup in the business at that particular moment, and there needs to be attending to operations or financial commitments promptly. Essentially, overdrafts are short-term loans that can be repaid as your financial situation improves later on.
4. Advanced Banking Services
Current accounts allow businesses to access advanced banking services that would fit their needs, such as online banking and mobile banking. The possibilities of managing your account, doing the necessary transactions, and checking the state of business financials are available for you all around the world from your smartphone or a computer.
5. Designed for High-Volume Transactions
Without a doubt, current accounts are designed for businesses with large transactions. It stands as the perfect option for a company of any size, whether it is a big corporate house or a small business that is on the verge of expansion.
6. Cheque and Payment Facilities
Current accounts usually come with extensive cheque facilities, which are an important part of business activity. These can be used for anything like paying suppliers for goods, paying contractors for work, paying salaries to employees, and covering all other business-related payments. This ability is strengthened by direct modes of payment in the form of NEFT, RTGS, and IMPS, where invoices can be cleared instantly and directly.
7. Tailored for Liquidity and Security
Companies or businesses dealing with huge sums of money find the current account the best choice to secure the money. The current account helps to deposit money in the account without holding it physically, therefore avoiding physical risks. In addition, the current account is liquid, meaning that one can withdraw his or her money whenever required, an aspect that is of the utmost importance toward being in a position to manage a good flow of cash.
Disadvantages of Current Accounts
1. No Interest Earnings
The current account, unlike the regular savings account, does not usually attract interest on the balances maintained. Hence, this is an opportunity cost, especially when large amounts are parked in the account. For businesses, this means the funds in the account are not generating any additional income, which could be the case with any other investment option, but with a current account, your funds are just sitting pretty.
2. High Minimum Balance Requirements
Most of the current account providers on the market have a high requirement for the minimum balance. In that regard, this would present a serious pain point in managing business finances for small and medium enterprises, more so for the startups, since going below this amount will attract big penalties, thereby piling more financial pressure. Such a requirement demands meticulous balance management, potentially distracting from other vital business tasks.
3. Service Fees
On the other hand, current accounts bear relatively high fee structures and may contain charges for checkbooks, account maintenance, and processing transactions. These can be unnecessary overheads that soon mount up, resulting in a large expense, more especially for those businesses that involve themselves in frequent bank transactions. It is essential to understand and manage these costs to keep your budget and financial health intact.
4. Operational Burdens
Now, one of the main things that keep many people away from opening a current account is the sheer complexity of the process to just sign up for it. We are talking in terms of paperwork and all those terms and conditions, which may sound burdensome and excessively time-consuming with long documentation and understanding intricate banking terms and conditions. This could divert your focus away from primary business operations.
5. Limitations on Free Services
Where the current account offers many benefits regarding banking, it also usually comes with limits in the number of free services like checkbooks, demand drafts, etc. Exceeding such limits will invite extra charges, resulting in significantly adding to your operational budget. Without GST number you can not open a current account.
Final Thoughts
There you have it. We tried our best to put out the pros and cons of the current account in the simplest words possible so that you don’t end up confused and making a wrong choice. We hope that with these advantages and disadvantages of a current account at your disposal, you are now able to see which type of account will be best suited for your personal and most importantly, your business needs.
