Everyone knows that we can deposit our money at the bank. But how many of you know where in the bank you should be depositing your money in, in order to better fit your needs? You may be familiar with the terms savings account, current account, and CASA (current account savings account), but do you really know how they work?
Savings Accounts in Brief
Savings accounts are meant to do what their name implies: encourage you to save. The interest gained from depositing your hard-earned cash in a savings account is almost a paltry sum and less than even fixed deposits for the same sum of deposit, but that isn’t the point. For those who are new to saving, a savings account is the way to kick-start your saving habit unless you have a large sum which you can already tuck away in a fixed deposit.
Highly Liquid Funds
Funds that have been deposited into a savings account can be withdrawn anytime without penalty. There is no forfeiture of interest rates earned or penalties incurred, which is what happens if you withdraw a fixed deposit before its maturity date.
Very Small Initial Capital Required
Almost anyone can save if they start with a basic savings account. You may have to explicitly ask for it, but in actuality there are two types of savings accounts besides the market-specific ones that banks promote. The basic savings account requires a very, very small minimum deposit, in the likes of RM10 (for Bank Rakyat, Bank Mualamat, BSN), RM20 (for Maybank, CIMB Bank, Affin Bank), RM50 (for Hong Leong Bank), RM250 (Alliance Bank), and RM200 (for RHB Bank, OCBC Bank).
As mentioned before, the interest rate earned for funds in a savings account isn’t high, but it’s still better than nothing. It can range from anywhere between 0.4% per annum to 3.28% per annum, depending on the size of your fund. Do note that you will need a substantial amount before you can achieve the higher end of the interest rate spectrum, which might be better utilised elsewhere.
Current Accounts in Brief
Do you need to issue cheques? Then a current account might be the one for you. Current accounts are usually aimed at businesspersons or companies due to the additional features banks offer that support entrepreneurship and frequent money transactions, such as standing instructions, overdrafts, the ability to issue cheques, and so on. Despite its target market, a current account can also be opened by individuals if they so desire.
Business on Credit
It isn’t very practical to deal with large monetary transactions in cash, so this is where current accounts comeÂ in handy. Current accounts have no limit on the amount of transactions you make, and there are features like standing instructions that make certain business payments easier.
No Interest Rate
Unfortunately, since the funds in current accounts are meant to be cycled quickly, you don’t get to earn interest on the deposit if your sum is small. You might be able to get attractive interest rates but the size of the deposit required is so large that it’s impractical for the typical salaried employee.
Two-in-One Deal: CASA Accounts
What better deal can you get than a combination of savings and current accounts into one CASA account? That depends on why you’re keeping your money in the bank in the first place. CASA is an embodiment of both current and savings accounts in a pre-determined ratio. You still don’t earn anything on the deposit in your current account though, so this two-in-one is not necessarily a good thing. If you’re not writing cheques all that often, why lock away a portion of your deposit in a no-interest account?
Which Do You Need?
The savings account is the most common type of account offered by the bank, and suitable for people who are looking to dip a toe into the world of saving. They can slowly accumulate their deposits until it is viable to be placed in a fixed deposit for higher returns. A current account is more for businesspersons, companies, or people who need to write cheques often, and it shouldn’t be used as a savings account because it earns no interest. If you like the ease of keeping track of as few bank accounts as possible, then the CASA account is for you.
Now that you know what these three account types are, do you know the one you need?