The challenge of which account type to choose between current and savings accounts by bank customer is as old as banking itself. I have come across bank customers who for lack of adequate knowledge operates a savings account instead of a current account and vice versa. While some, for reason of convenience choose savings account over current account.
On the other hand, banks allow such unguided practices because of competition
In this article i will try to explain the meaning of the two account types and what should guide your choice when you approach your bank to open an account.
Savings Account is a bank account in which people keep money that they want to save. An account (as in a bank) on which interest is usually paid and from which withdrawals can be made usually only by presentation of a passbook or by written authorization on a prescribed form. – Merriam Webster Dictionary
A Savings Account is an account that is used for keep money that is not meant for immediate use. It is an account that should encourages savings and it is used to warehouse money meant for future use.
Current Account otherwise known as Checking Account is a bank account from which you can take money by writing checks/cheques or a bank account against which the depositor can draw checks/cheques – Merriam Webster Dictionary
Current account is an active account that is meant for daily monetary transactions. The account supports frequent and regular transactions of the account holder.
The differences between the two (2) account types:
1. Account Opening Documentations:
Whereas savings account requires minimum account opening documentations – know you customer (KYC), like acceptable means of identification and utility bills current account requires reference from at least 2 existing current account customers.
2. Interest Rates and Charges:
Savings Accounts give interest on the money deposited in them. Interest on savings account is calculated on the minimum balance kept in the account on a daily basis. The interest rates applicable/paid on savings accounts mirrors the Monetary Policy Rate (MPR). The Central Bank of Nigeria (CBN) sets the minimum interest payable while banks vary from their rates to be competitive. Payment of interest on saving account may however be subject to minimum number of withdrawals per month.
While on the other hand, current accounts is a non interest bearing account. Current account customers pay charges to the bank in form of Account Maintenance Charges (AMC). AMC is currently at a maximum of 0.1% with customer at liberty of negotiating lower AMC with their bank
Banks will allow only limited free transactions on savings accounts otherwise the customer losses the interest payable on such account in a month or may even be charged while a current account has no restrictions on the number of transactions on the account.
– Savings account customers are not allowed bank lending unless they operate a current account.
– Cheque book facilities are provided for current account holders that may issue the cheque to a third party for payment for transactions between them while a savings acct holder will not use cheque book. There are special savings acct though that allows cheque books but with limited operations that may vary from one bank to another.
– Current account customers can deposit cheques (of unlimited amounts) issued in their names into their account while CBN only recently allows Cheque deposit up to limit of 2 Million Naira into savings account.
– Bank overdraft and loans are only allowed on current accounts and not on savings accounts
4. Minimum Balance Restrictions:
Savings account are operated with minimum balance on the account while current account customers are not restricted to minimum balance on their accounts.
Savings Account are also restricted to minimum daily or monthly limits otherwise they may loose interest payable for the month, the account may even be charged while non of such restriction exist on current accounts
5. Appropriate Use:
Saving Account is appropriate for salary earners and groups like clubs, trust funds, and other associations that be may want an account for regular savings.
While Current Account is perfect for business entities, government departments, societies, institutions, and so on. Because they have to deal with daily transactions. These organizations may also operates savings accounts if the have the desire to warehouse funds for future use.
Salary account holders who operates saving account must however know that they may not be able to access bank facilities unless they operates current accounts.
Competition and the need to keep customers have made banks to come up with varieties of hybrid accounts. We now have several hybrid savings accounts that share the features of current account and vice versa.
Read also: How to build your savings