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A Guide on Selecting the Right Current Account for your Business
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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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For many, using the same bank account for personal and business transactions may appear as the simplest and least costly option. However, opening at least one current account for your business is important as doing so would separate your personal finances from business expenses and help build a professional image for your company. However, as the fees, services and amenities offered by a current account may vary from one bank to another, it often makes many business owners stumble upon the idea of opening a current account. Here is a step-by-step approach to help you figure out the correct, current account for your company:
Minimum balance requirement: You must maintain a higher average quarterly balance to continue with your current account. The average balance requirement may range anywhere between Rs. 10,000 and Rs. 15 lakh. Failure to maintain the balance might result in a steep penalty, which can go as high as Rs. 8,000 per quarter. In the worst scenario, prolonged non-maintenance of the balance may even result in account deactivation.
Remember that the average quarterly balance requirement in a current account is higher than in a savings account. This is because such accounts offer higher benefits to businesses/companies to ensure a smooth flow of transactions. These benefits generally include the issuance of a free chequebook per month, free unlimited transactions and withdrawals, free NEFT and RTGS facility, free email and SMS alerts etc. Thus, the selection of a current account must be made after factoring in all the features that your business may frequently use. Choose the current account offering the highest number of benefits and features at a minimal balance requirement.
Premium services: Besides the common features like free cheque collection via speed clearing, free cash withdrawal at home branch and up to a certain limit at non home branch, faster outstation cheque collection, free NEFT and RTGS, free 24X7 SMS, net, and phone banking etc., few high-end accounts may even offer premium services. Premium services may include waiver on non-maintenance of average quarterly balance charges for the first 1 year from account opening date, a dedicated relationship manager, free access to debit card, better forex rates, home banking services etc. However, remember that these premium services may require you to maintain a higher average quarterly balance due to provision of higher benefits. Thus, opt for premium services only if your company requires it, otherwise choose a basic current account to avail the common benefits and features.
Fees and charges: The next crucial aspect to factor in is the fees and charges associated with the current account. You may know about these charges by visiting the GSFC (general schedule of features and charges) column of the bank’s website. In this section, all the fees and charges are mentioned, such as charges incurred on RTGS, NEFT, IMPS, chequebook, on-call requests, cash withdrawals, cash deposits, non-maintenance of average quarterly balance etc. Note that these charges are incurred only if you exceed the predetermined free limit. Thus, ensure to choose the account accruing the lowest charges on the features that you frequently use.
Additional Read: Do banks provide interest on Current Accounts?
Overdraft facility: Overdraft is a common facility provided by all banks. As per this facility, you can withdraw a higher amount over your balance amount in your account. This facility helps to solve liquidity issues, which may arise in a business due to inadequate working capital or delay in receiving the payment. Through this option, your business can clear all the pending bills and payments easily, which assists in preserving your reputation as a company.
Thus, you must ensure to avail of a higher limit on overdraft as interest is charged just on the withdrawn amount. Also, ensure to choose an account that charges the lowest rate of interest on such facilities. This would help reduce your overall interest outgo.
Ending note
A major reason for opening a current account is to conduct all business transactions smoothly and avail of the current account overdraft facility to meet situations of liquidity mismatches with ease. However, before you move ahead, ensure to compare current business accounts to zero on the account that offers maximum benefits at the lowest cost.
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