Banking is imperative for businesses, and it is important to distinguish between various kinds of services and accounts offered by banks, their pros and cons, and how they can benefit you.
It is important to align your banking needs with your financial objectives to maximise your returns.
Here we will cover some basic differences between Fixed Deposit accounts and current accounts and find out which is more suitable for your business needs!
Difference Between a Current Account And a Fixed Deposit Account
Meaning
Fixed Deposits, also known as time deposits, are those accounts in which you can deposit your money for a specific period of time.
Current accounts are those accounts that you can operate for your business for regular transactions like deposits, withdrawals and more.
Purpose
The primary purpose of opening online fixed deposits is an investment and to build a good return on investment by earning interest from the bank on the invested amount.
Current accounts are, however, of a continuous nature and don’t facilitate investments.
Rate of Interest
The bank pays interest to the fixed deposit account holder for investing his money annually, which ranges between 6% – 8%. This makes fixed deposits one of the most attractive investment opportunities.
For current accounts, the banks give a very nominal rate, as the transactions are regular.
Credit Card or Overdraft facility
In fixed deposits, you are eligible for a credit card or overdraft against fixed deposit that you can get for up to 90% of the amount deposited in your account.
Although there is no loan facility for current accounts, the businesses get the advantage of an overdraft facility, which they can use to make payments or use funds when required.
Withdrawals
Fixed deposits have a fixed tenure, and you cannot make withdrawals from your account. In emergencies, you can pre-close your fixed deposit account to retrieve funds, but you won’t be eligible for the entire interest earning, as promised by the bank.
There are no restrictions regarding deposits and withdrawals in the case of current accounts. You are free to operate these accounts anytime from anywhere.
Chequebook Facility
With current accounts, you get the benefit of a chequebook, which can be used to make payments.
Besides cheques books, account holders also get pay-in-slip books and statements of accounts, which can be used for preparing financial accounts. This facility is not provided for fixed deposits.
Favourability
Anyone can open online fixed deposits with little paperwork, documentation, or verification. But only businesses, organisations, and big industries can operate current accounts because of continuous and daily transactions incurred by them.
They also need to submit several documents to open a current account.
Tenure
There is a fixed period assigned to online fixed deposits. You can retrieve your funds along with interest earned at the end of the tenure or reinvest the funds by renewing your fixed account.
Current accounts don’t come with any tenure or period. You can operate these accounts as long as you have a running business.
Bank Charges
Another difference between current account and fixed deposit account is the fee charged by banks.
Fixed deposits don’t come with any kind of fee, hidden charges, withdrawal amount, or service charges. In current accounts, a periodical service or maintenance fee is applicable, which needs to be paid by all account holders.
Additional Advantage For Senior Citizens
Several banks offer a special extra rate of interest on fixed deposit savings for senior citizens. This rate can increase with age, and the savings will multiply, creating a healthy financial corpus for the elderly.
However, no such facility is provided in current accounts.
Minimum And Maximum Amount
Generally, fixed deposit accounts come with a minimum account balance, which varies from bank to bank. Current accounts don’t have any feature of a minimum account balance, and their accounts will still be operational, even if their account balance is in deficit.
There could be a small percentage of interest charged for the deficit amount, but these accounts provide ease in the daily functioning of organisations.
Conclusion
Both fixed deposits and current accounts have advantages and disadvantages, so it is important to understand the difference between current account and fixed deposits. The ideal scenario is to open a current account for daily transactions and a fixed deposit to maintain an investment account.
You may also love to know about – Fixed deposit and recurring deposit
The benefit of locking in your investment for a specified tenure is to generate returns on your investment and get a lump sum amount at the end of the tenure. But for the daily functioning of the business, current accounts work best.
A combination of both can ensure easy transactions and increased savings!
