5 MinsNov 29, 2022
Kashinath Singh used to work as a driver in Mumbai before he sold the ancestral land in his village and bought two cars, with which he planned to start his own taxi business. Through some contacts, he approached a call center company to ferry
their staff. The manager at the firm told him that in order to get such a contract, he would need to open a current account.
To understand more about a current account and its various benefits, he approached his former employer, Mr. Venkatraman, a financial planner. Here is what he told Kashinath:
What is a current account?
A Current Account is a type of deposit account offering a significantly higher number of transactions (in terms of cheque issuance, deposits, withdrawals and DD issuance etc.) and services designed for businesses (such as Overdraft, i.e. the ability
to avail of more funds than the balance maintained with bank which can be repaid at a later date). A current account is a banking account opened by businesses such as proprietorships, partnership
firms or limited companies that offer higher number of transactions and value added facilities specific to business needs.
What are the advantages of a current account?
Opening a current account for his business will be beneficial for Kashinath in the following ways:
- It will help Kashinath keep track of his business income and expenditure and keep personal and business finances separate.
- With a current account, he will be able to perform unlimited transactions without restrictions, unlike a savings account.A savings account has limited transactions, after
which the customer is charged a fee.
- As his business grows, Kashinath will find that current accounts offer numerous benefits that can help him increase the efficiency and transparency of his business finance. He can use NEFT, RTGS and IMPS to receive and make payments. He can
also link his UPI to his current account. And if he gets paid in cash, he can make multiple cash deposits, unlike a savings account that limits the number of cash deposits.
- With a current account, Kashinath could even get an overdraft facility. An overdraft is like a short-duration loan that helps manage cash flow crunches. Say, Kashinath has to carry out emergency repairs for his car but doesn’t have sufficient
funds. Using the overdraft facility, he could do that (within limits specified by the bank). Once he receives payment from his clients, the overdraft is adjusted. It is important to note that the bank will charge interest on the overdrawn
amount.
- Mr. Venkatraman pointed out to Kashinath that the call center company he had approached for hiring his services insisted on him having a current account because their internal norms wouldn’t allow them to make vendor payments to a savings
account. A current account gives a business a serious look.
[Also Read: Open a Current Account to shift your business into the next gear]
Convinced about the need for a current account, Kashinath enquired about which bank he should choose to open it. Mr. Venkatraman told him to factor in a few aspects.
Transaction fees:
While a current account allows unlimited transactions, banks charge a fee when the number of transactions crosses a pre-set limit. Kashinath should opt for a bank that charges lower fees.
Minimum balance:
Most current accounts require account holders to maintain a minimum balance. Since Kashinath is just starting, it would be wiser for him to have a smaller minimum balance that needs to be maintained.
Core services:
He should also ensure that the bank he chooses is extremely reliable regarding core services like internet banking, multi-location cash deposits (limit of cash deposit is based on monthly / quarterly balance maintained in the account) and fund
transfers, foreign currency transfers (inward / outward remittance), bill payment services and debit card facility.
Overdraft limit:
Most banks offer current account holders overdraft facilities after they are convinced of the customer's credibility. Kashinath should choose a bank that can provide him with
the best rates and can offer him the OD facility as soon as possible.
Other value added service:
Other value added services include cash management services (CMS) solutions for payments and collections for optimal fund management, locker facility, etc.
Size of the bank:
It is always preferable to have an account with a large bank. Not only do such banks have a greater number of branches and ATMs, which makes life easier, but it also helps the image of a business, especially a new one.
Considering these factors, Mr. Venkatraman said the ideal bank for Kashinath’s new business would be Axis Bank. It has a specially designed current account for sole proprietors which would be ideal for Kashinath as he grows his business.
Moreover, the entire account opening process is digital and Kashinath could get an account number allocated instantly. This would help him in pitching his proposal to his prospective call center client.
A Digital Current Account for sole proprietors has limited transactions, after which the customer is charged a fee.
Disclaimer: The Source, a content creation and curation firm has authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
