What is Current Account and its Types, Benefits and Features

What is Current Account?

A current account is a type of bank account designed primarily for businesses, professionals, and individuals who conduct frequent and high-volume transactions. Unlike savings accounts, which are meant for earning interest on deposited funds, current accounts focus on offering flexibility and convenience for day-to-day monetary operations. In India, current accounts are an integral part of the “Account Section” under the broader “Banking Industry,” serving the banking and finance needs of traders, companies, and entrepreneurs. These accounts enable holders to deposit and withdraw funds as needed, issue cheques, and often come with overdraft facilities to manage cash flow gaps.

Benefits of Current Account

Unlimited Transactions:

• There are generally no limits on the number of deposits and withdrawals, making it ideal for businesses that require frequent fund movements.
• Most banks allow free cash deposits and withdrawals up to a certain threshold, beyond which nominal fees may apply.

Overdraft Facility:

• Current accounts often provide an overdraft facility, allowing account holders to withdraw more money than their available balance up to an agreed limit.
• This facility helps businesses manage temporary cash shortages without having to apply for a separate loan.

Cheque Book and Demand Drafts:

• Account holders receive cheque books for making payments directly from the account.
• Banks also issue demand drafts and pay orders, facilitating secure bulk payments to vendors or suppliers.

Online and Mobile Banking:

• Most banks in India offer robust online and mobile banking platforms for current account holders.
• These platforms enable real-time funds transfers (NEFT, RTGS, IMPS), bill payments, and account monitoring from anywhere.

No Interest Paid (But More Flexibility):

• While current accounts typically do not earn interest, they offer superior transactional features suited for business operations.
• For businesses, ease of fund flow and higher transaction limits often outweigh the benefit of earning nominal interest in a savings account.

Customized Banking Solutions:

• Many banks provide tailored services such as dedicated relationship managers, cash management solutions, and merchant services for current account holders.
• Additional services may include collection of receivables, bulk payment solutions, and trade finance support.

Features of Current Account

Minimum Balance Requirement:

• Unlike zero-balance savings accounts, most current accounts require maintaining a minimum average monthly balance (MAB).
• The MAB varies from bank to bank and may differ based on the branch location (metro, urban, semi-urban, rural).
• Failure to maintain the prescribed balance can attract penalty charges.

Cheque Facility:

• Account holders can issue cheques for payments, which typically clear within the same or next working day under local clearing.
• Multi-city and multi-state clearing might take an additional day or two.

Overdraft and Cash Credit:

• Overdraft (OD) allows the account to go into negative balance up to an agreed limit, subject to interest charges on the overdrawn amount.
• Cash credit (CC) is a revolving credit facility where interest is charged only on the amount utilized, not the entire limit.

Unlimited Transactions (Within Limits):

• Most banks allow unlimited free electronic transactions (NEFT, IMPS, RTGS) up to a certain count or value.
• Cash transactions might be free up to a monthly cap; beyond that, nominal charges per instance may apply.

Specialized Statements and Reporting:

• Current account holders can request daily, weekly, or monthly statements as per business requirements.
• Customized MIS (Management Information System) reports can be generated for better cash-flow analysis.

Trade and Foreign Exchange Services:

• Banks often link current accounts to trade facilities such as Letters of Credit (LC), Bank Guarantees (BG), and Export-Import financing.
• Foreign currency current accounts are available for businesses engaged in international trade, allowing hassle-free remittances and receipts.

Cheque Collection (PDC) and Clearing Services:

• Banks may offer Post-Dated Cheque (PDC) collection, where cheques received from customers can be deposited and managed efficiently.
• Cheque bounce alerts and instant clearing updates help businesses track their receivables in real time.

Types of Current Account in India

Regular Current Account:

• This is the most basic form of current account, suitable for small enterprises and individuals with moderate transaction volumes.
• Requires a relatively lower minimum balance compared to premium variants.

Premium Current Account:

• Designed for medium to large businesses with higher transaction requirements and balances.
• Comes with enhanced limits on free cash transactions, priority service, and a dedicated relationship manager.

Basic Current Account:

• Some banks offer a basic current account with minimal or zero minimum balance requirements, aimed at start-ups or micro-enterprises.
• Limited transactional benefits compared to regular or premium accounts but provides essential banking services.

Foreign Currency Current Account (FCNR):

• Caters to exporters, importers, or businesses involved in cross-border transactions.
• Maintains balances in overseas currencies such as USD, EUR, GBP, etc., helping mitigate foreign-exchange risks.

Salary Current Account:

• Though more common for savings accounts, certain banks allow salary-led current accounts for professionals or senior executives with substantial monthly incomes.
• Often includes special perks like free demand drafts, discounted locker charges, and lower overdraft interest rates.

Institutional Current Account:

• Specifically tailored for non-profit organizations, trust bodies, educational institutions, and government entities.
• Provides specialized transaction limits, waiver of certain charges, and easy fund transfer mechanisms between branches.

Multi-Currency Current Account

• Some banks provide a single current account linked to multiple foreign currencies.
• Ideal for companies operating in several international markets, as it allows receiving and sending money in different currencies without opening separate accounts.

How Does Current Account Work?

Account Opening and Initial Deposit:

• The business or individual approaches a bank branch or applies online with all required documents.
• After KYC (Know Your Customer) procedures and verification, the account is activated with an initial deposit meeting the bank’s minimum balance criteria.

Transaction Process:

• Deposits: Funds can be deposited via cash, cheques, demand drafts, or electronic transfers (NEFT/RTGS/IMPS).
• Withdrawals: Cash withdrawals can be done at bank branches or ATMs (depending on bank policy) using cheques, debit cards, or electronic methods.
• Cheque Clearing: When a cheque is deposited, the bank sends it for clearing. Upon successful clearing, the funds are credited to the beneficiary’s account.
• Electronic Transfers: Businesses often use NEFT/RTGS for inter-bank transfers. RTGS is preferred for high-value same-day transfers, while NEFT works in hourly batches. IMPS enables instant transfers 24×7.

Overdraft Utilization:

• If a current account has an approved overdraft limit, the account balance can go negative up to that limit.
• Interest is charged daily on the overdrawn amount at the rate agreed upon when the overdraft was sanctioned.
• The business is expected to keep the average usage within permissible limits and clear any outstanding dues as per bank guidelines.

Earning and Charging:

Current accounts typically do not earn interest on positive balances. Instead, banks charge various fees and service charges:

• Monthly or Quarterly Service Charges: If the average monthly balance falls below the minimum required.
• Cheque Book Charges: Issuance of cheque leaves beyond a certain limit may attract fees.
• Cash Deposit/Withdrawal Charges: If cash transactions exceed the free limit set by the bank.
• Bounce and Dishonor Charges: Fees levied if a cheque issued from the current account bounces.
• Banks may offer interest on the unutilized overdraft limit as an incentive (subject to specific terms and conditions).

Account Statements and Reconciliation:

• Account holders receive monthly or periodic statements, detailing all debits, credits, charges, and interest on overdraft (if applicable).
• Businesses reconcile their books regularly with these bank statements to ensure accurate accounting and cash-flow management.

Special Services Linked to Current Account:

• Merchant Payments: Integration with Point-of-Sale (POS) machines or QR code-based payment acceptance for credit/debit cards and UPI.
• Auto Sweep-In / Sweep-Out: Excess funds in the current account can be automatically swept into a fixed deposit for higher returns. Conversely, if the current account balance is insufficient, funds can be swept back from the fixed deposit to avoid overdraft.
• Trade Finance: Seamless linkage to LC, BG, and export-import bills collection, wherein the current account acts as the primary settlement account.

List of Documents Required to Open Current Account in India

When opening a current account in India, banks follow KYC norms prescribed by the Reserve Bank of India (RBI). The exact list may vary slightly from bank to bank, but generally includes:

Proof of Identity (Any One):

• Aadhaar Card
• Passport
• Voter ID Card
• Driving License
• PAN Card (mandatory for tax purposes)

Proof of Address (Any One):

• Aadhaar Card (if not used as ID)
• Passport
• Voter ID Card
• Utility Bills (Electricity, Water, Gas) not older than 2–3 months
• Registered Lease Agreement or Rental Agreement
• Property Tax Receipt or Municipal Corporation Tax Receipt
• Proof of Business Existence (For Companies and Firms)
• Certificate of Incorporation (for Private/Public Limited Companies)
• Partnership Deed (for Partnership Firms)
• LLP Agreement (for Limited Liability Partnerships)
• GST Registration Certificate (if applicable)
• Trade License or Shop Establishment Certificate (for sole proprietorships or traders)

Proof of Business Address:

• Utility Bill of Business Premises (not older than 2–3 months)
• Lease/Rent Agreement (with NOC from landlord)
• Property Tax Receipt in the name of the firm/company

Board Resolution (For Companies):

• A certified copy of the board resolution authorizing the opening of the current account and specifying authorized signatories.
• List of Directors and their specimen signatures.

KYC Documents of Authorized Signatories:

• Proof of Identity (as mentioned above) of each signatory.
• Proof of Address of each signatory.
• PAN Card and recent passport-size photographs of each signatory.
• Specimen signature of each signatory on the bank’s form.

Photographs:

Recent passport-size photographs of the account holders (in case of sole proprietorships) or authorized signatories (in case of companies/firms).

Income Tax Returns (Optional but Recommended):

• Last two years’ Income Tax Return (ITR) and Profit & Loss Statement to support the nature and turnover of business.
• Audited financial statements, if available.

Additional Documents (Depending on Bank Requirements):

• Board resolution or authorization letter (for large corporate accounts).
• Memorandum & Articles of Association (for companies).
• GST and IEC code (Import Export Code) for exporters/importers.
• Reference letters or banker’s certificate from existing banks (for premium accounts).