Savings account and current account are common types of bank accounts, and they both serve specific purposes. This means there are differences between savings and current accounts.
You can open a savings account to deposit excess income and earn interest. You can also open a current account that will help you make quick transactions and give you access to a variety of facilities.
Savings and Current accounts have their pros and cons. Depending on which type of account suits your business, you can ignore the drawbacks while enjoying its benefits.
This article will give you an insight into both types of bank accounts and the differences between them, and, most importantly, you will get to know which is best for your business.
Table of Contents
What is a Savings Account?
A savings account is a type of bank account designed to help the account holder save. It allows the account holder to save easily while they earn interest on their money.
With an interest rate of about 4%, a savings account allows account holders to meet their short-term financial goals. A savings account is a safe way to save surplus income. It is operated mainly by individuals and can be used jointly.
What is a Current Account?
The purpose of a current account is to satisfy individuals and businesses that undertake regular transactions. This is how it derived its name. Because of what it is designed for, it is more suitable for firms, companies, public entities, and businessmen/women.
Account holders have access to unlimited transactions and the option of withdrawing above their account balance, i.e., overdraft.
Differences Between Savings and Current Account
Both savings and current accounts are designed to serve some particular purposes. Because of their uniqueness, they are also different in terms of their purpose, interest, and suitability, amongst other reasons.
With different points difference, here are the differences between savings and current account:
One of the differences between a savings account and a current account is their purpose. So when you know why banks create them, you can assess whether it is the right one for your business.
Savings account: The purpose of a savings account is savings. It allows account holders to deposit money, save it, and earn interest. It is meant to keep idle or surplus money and get benefits from them. They don’t expect you to transact daily but monthly or periodically. It helps build saving habits.
Current account: A current account aims to help individuals and businesses that undertake regular transactions. Contrary to a savings account, a current account is meant for spending and is ideal for quick and daily transactions.
Another one of the differences between savings and current account is who it fits. These account types were created for a particular group of people or could suit some group of people because of their features and characteristics.
Savings account: This type of bank account is suitable for individuals that earn salaries. It helps people draw closer to their financial goals by assisting them in saving while earning interest.
Current account: It is suitable for people that make regular and frequent transactions. This category includes firms, companies, public entities, and businessmen/women. This category of people will need a stable flow of money because of the nature of their business, how frequent their transactions are, and how much they spend.
Read Also: Best Money Saving Apps In Nigeria for 2022
Interest is another way to differentiate a savings account from a current account. As you are looking for which account type is best for your business, you should consider whether the interest will interest you.
Savings account: In Nigeria, a savings account earns 4.2% monthly. Savings account holders don’t make regular transactions, allowing them to earn interest on their savings. With a savings account, holders can use their surplus income to earn interest. Since transactions are limited, it is easier to accumulate more money over a period of time.
Current account: Current account holders don’t earn any interest because the money goes in and out of their accounts regularly. The frequent money transfers don’t allow for interest to accrue on the money in their accounts. While a current account does not earn interest, it offers the owner other benefits.
One of the striking differences between a savings account and a current account is the overdraft facility. An overdraft is a facility that allows the account holder to withdraw above the money in his account. Here, the account holder must do some paperwork and pay interest on the overdrawn amount.
Savings account: Savings account holders can only withdraw the amount of money in their accounts and cannot withdraw above it. A savings account is meant for savings and deposits. Hence, it is to help keep money safe. It is not primarily for spending. That’s why it makes sense that savings account holders don’t have access to an overdraft facility.
Current account: Current account holders have the option of an overdraft facility. Due to their regular spending, they might exhaust the money in their account. This might disrupt their business operations, so the bank has a facility for overdrafts where account holders can withdraw above their current balance and pay back later with interest.
Banks will like to have the customers keep some amount as the minimum for security and other reasons. One of the differences between a savings account and a current account is the amount that should be kept at the minimum in their accounts.
Savings account: Account holders are generally required to have a minimum balance in their accounts. For a savings account holder, the minimum balance that should be left in the account is usually low, sometimes N200. Some banks in Nigeria even allow for zero balance.
Current account: While the savings account holders don’t need to keep so much money in their accounts, current account holders have to. Some banks require a minimum balance of N1000.
Number of withdraws
One of the differences between savings and current account you should consider is the number of withdraws you can make. Both account types are either limited or not limited by withdraws they can make within a period. While one is more frequent, the other is less.
Savings account: A savings account has a limit on transactions you can do per month. Sometimes, after exceeding the limit, the account holder pays a fee. For example, in Nigeria, savings account holders can withdraw three (3) times from the ATMs of other banks and are charged #35 after the third withdrawal.
Current account: There is no limit to the transactions a current account holder can make. No limit on withdrawal and even spending. A current account (as the name implies) should have a regular flow of money. Hence it should not be limited by anything. A current account holder can make as many transactions as possible.
Volume of transactions
The way savings account and current account differ because of the number of transactions they can make. One of the other differences between savings and current account is how much they can transact.
Savings account: A savings account is limited by volume of transactions. Not only can it not make unlimited transactions, but it also cannot transact so much. Usually, there is a limit to the amount of money a savings account can receive. For example, when a savings account gets over N100,000, the funds cannot be withdrawn until the account holder verifies the transaction and provides identification. A savings account is primarily for saving money, so it is not expected to transfer large amounts of money or receive so much.
Current account: A current account is not limited by anything. From the date you open the account, you don’t have to worry about how much you can receive or send (except the authorities suspect foul play). In addition, a current account is supposed to accommodate large spending and money receipts, which happens regularly. Hence, a current account should not be restricted in any way.
Savings or Current Account: Which is Best for a Nigerian Business?
Most businesses have large and regular spending and would love a frequent cash flow. Because of their operations, it will be preferable that their accounts are not limited by the money available, the volume of transactions, or the number of withdraws.
The best type of account that suits this is the current account.
However, a savings account could have features your business will want to exploit.
If your business is a form where you don’t have many transactions going on, you can opt for a savings account. For example, you run a freelance business. You can keep your money in a savings account since you will not be spending big.
A savings account can help you safeguard money for a long time and even earn interest. It all depends on the business you do. You can exploit the benefits of the differences between savings and current account.
There are few differences between savings and current account, and each should give you an insight into which one will suit your business.
Each has its benefits and drawbacks, which will influence your choice, whether the benefits outweigh the drawbacks or vice versa.
Even with this outline of differences between savings and current account, it is entirely up to you to choose. You can choose the one that works for you depending on your type of business.
- EntrepreneurMarch 7, 2023Everything You Need to Know About Market Segmentation as an Entrepreneur
- CareerFebruary 4, 2023How to Become a Product Manager in Nigeria
- Business InsightsJanuary 2, 2023Top 5 Effective Business Name Generators to Choose A Business Name
- EntrepreneurNovember 30, 2022How to Start A Music Record Label in Nigeria