The need to put into consideration personal finance to secure a good and a better future against rainy days (unforeseen circumstances) have always been a form of fear to humans. We work so hard just to meet up with the end means and be financially stable and free in the long run. Before civilization, man has always looked for ways to save his valuables using crooked means like digging and burying his money on the farm where nobody else knows.
But with the advancement of technology, man has been able to put in place financial institutions like the banks to solve this saving problem. Thus, this gave rise to the introduction of different forms of accounts by the banks with different functions, which brought about the difference between a savings account and a current account in this article.
Sadly, In this part of the world, most people don’t usually pay attention to the different kinds of accounts available to choose from but would rather believe that the purpose of this account is just to save money and nothing more. At most, we all assume that a savings account is for savings and a current account is exclusively made for business owners or those with big money. But the truth is, there is more to these accounts other than the traditional wisdom we hold towards them.
Thus, to clear your shallow understanding of the difference between a savings account and a current account, this article was written. Let’s take a look at what saving is all about, its importance as well as the concept associated with it before discussing the difference between a savings account and a current account.
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What Is Saving?
In simple or layman’s terms, saving is simply an act of securing some of your valuables such as money, assets, documents, food and some basic life necessity against rainy days(to be used when the pressing need arrive).
In other words, saving is the portion of income not spent on current expenditure. It could also mean, the money set aside for future use and not spent immediately or the money a person has left over after they subtract out their consumer spending from their disposable income over a given period. Savings, therefore, represents a net surplus of funds for an individual or household after all expenses and obligations have been paid.
Methods of saving include putting money aside, for example, in an investment fund or as cash. Saving also involves reducing expenditures, such as recurring costs. In terms of personal finance, saving generally specifies low-risk preservation of money, as in a deposit account, versus investment, wherein risk is a lot higher, in economics more broadly, it refers to any income not used for immediate consumption. Saving does not automatically include interest.
The Importance Of Saving
Let’s take a look at some of the benefits of saving which leads to deciding on which of the accounts is suitable for your money.
For Unforeseen Circumstances/ Emergency.
When you keep a portion of money aside for emergency purposes, it will help you during downtime or a testing situation. Having an emergency fund gives you some level of confidence and financial security in times of need. When you do this, the haste to pick up credit cards or take out high-interest loans becomes uninteresting to you.
Creating A Better Future
Your savings can sometimes be the roadmap to meeting a couple of the number of your set goals. Among these could be to buy a new car, buy a house, accumulate funds for your retirement, or even go on vacation holiday. You can create your future life by starting a proper saving habit to enjoy the best of things that life has to offer and live a very fulfilling life.
Take Care Of Your Children’s Future And Education.
Saving can help in the long run to meet up family responsibilities like taking care of your children’s future and their education most especially when you start saving early, this helps you, in the long run, to make their dreams become reality as well as taking them to the best college and schools across the globe.
Saving Can Help You Take Calculated Risks And Not Be Burned Out
One of the importance of saving money is to help you build cash reserves so you can take calculated risks with less worry. If you don’t have any savings, it may cost you and make it difficult to pursue some of your passions. For example, is starting a business. To be a small business owner, you’ll need financial backing to get it off the ground and take this as the best advice because, aside from feeding you with research content, the writer has to walk a mile in this aspect which have have resulted in some failed businesses.
Help Protect And Save Your Marriage
It’s not such a big deal that, virtually one of the leading causes of broken homes and divorce is insufficient money in the home. And if you’re reading this as a married couple, you’d agree with me that you’ve probably experienced a money fight or two. These things are no fun trust me, it might tear a family apart.
Therefore, there’s no need for a prophet to tell you that having more money saved, the less frequent those arguments may occur.
What Is A Savings Account?
A savings account is an interest-earning deposit account created by a bank. This type of account usually pays you a certain amount of interest. It is a great choice for keeping the cash you want available for short-term needs. Savings accounts have some limitations attached to them, as to how often you can withdraw funds, but generally, it gives you the flexibility that is suitable for building an emergency fund or saving for a particular goal such as rent, school fees or buying a car. Money kept in this account usually earns some modest interest, whose rate is determined by the account type.
The Features Of A Savings Account
- A savings account is designed primarily to help you save money.
- This type of account allows you to deposit money at convenience, and earn interest down the line for doing it.
- A Savings account can be opened by an individual or jointly as a group to meet a goal and it normally requires you to maintain a pre-specified certain amount as a minimum balance.
- Interest rates earned on a savings account usually range from between 4% to 6%. A savings account also does carry the facility of issuing cheques.
- Savings accounts have no limitations on the amount to be deposited or withdrawn, but it should be noted that it is compulsory to maintain the minimum balance in the account, otherwise, you will be fined by deducting a specific amount from your savings account.
- There are no limits as to how long a savings account would or should be operated which means that there is no time-bound for managing the account.
- An overdraft facility is not available with a savings account.
- Savings account holders are being issued debit cards and online banking services for regular transactions be it online, offline or at an ATM stand.
- A savings account promotes saving habits
What Is A Current Account?
A current account on the other side is a deposit account created by a bank for individuals or financial institutions that allows withdrawals and deposits. This type of account is very liquid and can be accessed using cheques, automated teller machines (ATMs) and electronic debits, among other methods. A current account differs from other account types in that it allows numerous withdrawals and unlimited deposits, whereas savings accounts sometimes limit both. Current accounts can include business accounts, student accounts and joint accounts.
The Features Of A Current Account.
- Current Accounts got its name for the purpose they are suited for, which is regular transactions.
- A current account is most specifically designed for users like firms, companies, public enterprises, businessmen, etc.
- Current accounts do not earn any interest because of the liquidity attached to the account.
- Current accounts usually do not carry a limit on the number of transactions which you can perform.
- A current account may be suitable for individuals to carry out their day-to-day transactions, they are typically used for regular transactions by businesses, trusts, associations, private as well as public entities.
- A current account does not pay interest on deposits, however, it’s quite interesting to note that some banks have recently begun to pay interest on such accounts.
- An overdraft facility is available with a current account.
- A current account has a higher minimum balance requirement. If you do not keep to it, a fine more like a penalty will be imposed on your account by deducting money from your bank account.
- KYC documents are required to open current accounts.
- There is no limit to the amount that can be deposited or withdrawn, but the account holder must have sufficient funds in the account to be able to complete a transaction.
The Difference Between A Savings Account And A Current Account
Having discussed the meaning of a savings account and a current account, let’s take a look at the difference between a savings account and a current account, how they differ, their needs to users as well as what distinguishes one from another under some specified points.
A Savings Account is primarily designed to encourage and promote savings. While a current account is designed to facilitate regular or frequent transactions.
Suitable For An Individual
A savings account is ideally meant for any individual who earns a steady or regular income like salary employees. This type of account is also ideal for those who have any short term financial goals to meet like a future vacation, financing a wedding, buying a car etc.
On the other hand, a current account is more suited for individuals who are required to carry out frequent money transfers like businessmen, firms, companies, organizations, public enterprises, etc.
A bank offering the option of a savings account does usually put a limit on the maximum number of transactions which you can perform every month. While current accounts do not have any limit on the maximum number of transactions which one can carry out. This is primarily because Current accounts serve the purpose of carrying out frequent transactions.
A savings account normally earns you an interest between 4% to 6% on a pre-specified basis. Since these accounts do not allow unlimited transactions, it is easier to accumulate more funds over some time. While a current account on the other hand is quite different. In the case of current accounts, banks usually do not provide any interest. This is because of the liquid nature of the account which allows frequent transactions.
The minimum balance is the minimum amount of money which must always be in your account to prevent it from de-activating or lapsing. For savings accounts, the minimum balance required is usually low. However, for Current accounts, one may need to maintain a relatively higher amount as a minimum balance.
This is a situation when you withdraw more money from your account than is there, that account is said to be overdrawn. On a savings account, banks do not offer or allow overdraft facilities but in a current account, this option is provided. Overdraft facilities are made available to a current account holder to primarily ease any temporary cash flow issues.
From the presentation above, you can now see and tell the differences that exist between a savings account and a current account which leaves you with better options to best decide which is a good fit for you as well as knowing the purpose that suits your saving needs.