Banking Guides

Current Account: Meaning, Features and Benefits

Current Account india

As cited in a circular by RBI, “Current Account” is a form of demand deposit wherefrom withdrawals are allowed any number of times depending upon the balance in the account or up to a particular agreed amount and shall also be deemed to include other deposit accounts which are neither Savings Deposit nor Term Deposit.”

Going by the book, a current account is basically opened by business entities to carry out their financial transaction.

Why only business entities?

This is because, businesses usually require a lot of transactions in a day. They have to make payments to worker or suppliers, transfer funds, or receive payments through cheques,cash etc. To accommodate such operations is beyond the scope of a savings bank account, since it is subject to some sort of restriction with regards to the number of withdrawals as well as the amount of withdrawals during any specified period. As a solution, current accounts are designed to facilitate such frequent financial transactions.

Current account can be opened for sole proprietors, partnership firms, private limited companies, public limited companies, trusts, clubs, associates etc on fulfilling the necessary criteria and providing required documents.

Features of Current Account

  • There is no restriction on the number or amount of transaction. As long as the account holder has funds in their account, they can withdraw any amount any number of time during the business hours. The same hold true for deposits.
  • No interest is paid on current account deposits. Since current account are not meant for regular saving, banks usually do not offer interest on such deposits. However, some banks are offering interest on current accounts.
  • Banks recover the ledger folio charges from the current accounts for a specified period of time. Ledger folio charged are the account maintenance charges applicable for transaction beyond free entries.
  • Just like savings account, a current account holder is also required to maintain the minimum average balance as prescribed by the bank. Banks can enforce penalty in case of non-maintenance of minimum balance.
  • There should not be more than one current account for the same business entity.
  • Current accounts are required to follow the KYC guidelines and can be opened only after complying with the norms.

Benefits of Current Account

  • Current account helps businesses streamline their financial matters. It also speaks of their business professionalism.
  • Account holders can directly make payments through cheques, drafts, pay order, and NEFT/RTGS. 
  • One can avail overdraft or cash credit facility when they have a current account.
  • Creditworthiness is often tracked through your current account status. Your creditors obtain such information from your bank before advancing loans.
  • You can also avail an ATM card if you are a sole proprietorship firm. A credit card can also be issued against current account provided you meet their guidelines. Banks these days, offer host of current account products that help in smooth functioning of your business.

These are some of the important aspects of a current account in India. If you have something to add or share, please use the comment box below.

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