Opening an account is one thing I encourage people to do. Whether you are a student or a successful businessman, you need a bank account. The reasons are many. But it tends out many do not know which account-types are available and which one is suitable for them. I’ll explain some features, benefits and disadvantage of two common account-types – current account and savings account – to help you easily decide which one is suitable for you.
Purpose
If you’re opening account for the purpose of everyday financial transactions, without an investment motive, then current account is the ideal account for you. Current accounts allow you to make deposit and withdrawals as frequent as you want. Savings accounts on the other hand restrict you to limited number of withdrawals within a period, say once a month. Savings accounts are for short term investment purposes. Savings account pays you interest over the period, say at end of month, for investing your cash with the bank. Compare the interest rate on the savings products offered by financial institutions, among other prudent reasons before choosing to bank with a financial institution.
Transaction Frequency
How often do you intend to withdraw cash from your account? If you are a student or a worker who will likely be making frequent withdrawals from your account to meet personal expenses and upkeep, then a current account is what you need. Current accounts are good for businesses and individuals with frequent transactions. If you would likely be making withdrawals once a month or over longer intervals, then you could opt for a savings account which would earn you some interest over the period whilst escaping the monthly charges that comes with a current account. Savings products usually discourage frequent withdrawals. You may forfeit your interest if you withdraw more than once in a month, in the case of some products.
Bank Charges and Interest
Current accounts attract bank charges. Basically the bank is charging you some amount for keeping your money safely for you among other reasons, compared to risking all the cash with you at home. At the end of the month, you may have less money in your account than what you begun with – assuming there are no deposits and withdrawals or that they equal each other – the difference being the monthly charge. The charges on the account are usually billed on monthly basis, either as a flat fee or a percentage of your turnover. Savings account is like the opposite; an alternative that rather adds money to your money at the end of the month. The bank compensates you for giving them your cash (liquidity premium) over a period of time (time value of money) among other reasons in the form of an interest rate on the value of the balance(s). This is calculated and credited to your account by the bank.
In recent times, there are many other financial products. There are accounts which have characteristics of both current and saving accounts – hybrid accounts –that allow you to make some decent number of withdrawals and earn interest on your account at the same time. Thanks to competition.
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