4 Things You Need to Look for in a Current Account

A Current Account is a type of deposit account into which deposits and withdrawals can be made. Current Accounts are available at all banking institutions in Malaysia and are used for both personal and business purposes. All Current Accounts, including both conventional and Islamic ones are protected by PIDM insurance. The following lists a few important features that you need to look into before you decide to open a Current Account:

1. Cheque book facility

One of the most important facilities made available by Current Accounts is the cheque book facility. With this facility you can also make payments by cheques. Certain charges like stamp duty are mandatory with the issue of new cheque books. However, banks may also impose other charges when issuing new cheque books. Check for a bank which will automatically issue you a new cheque book when you are down to your last few leaves in your present cheque book, at no additional cost.

2. Interest

Many Current Accounts do not offer interest. However, some Current Accounts do offer interest; the rate of interest can vary from bank to bank, so shop around. Also, remember that those Current Accounts that do offer interest also have additional conditions like maintenance of minimum balance which if not maintained will lead to penalties. So, look at all the conditions involved before you decide on an interest paying Current Account.

3. Overdraft

An Overdraft is a credit facility extended by a bank to a Current Account holder which enables the holder to withdraw more than what is in the account. Overdraft facility may not be automatically given to a Current Account holder; the holder may need to maintain the account for a certain period, show active usage and may need to make an application. Although this is a great facility to enjoy it goes without saying that one needs to look at the terms involved before availing of this facility.

4. Additional Features

Phone Banking, Internet Banking, an international ATM card, the ATM and branch network of the bank, monthly statements, charges involved in the operation of the account, additional facilities like a “sweep” facility which sweeps in cash from a linked savings account to cover for any cheque payments etc are all important features to look for before deciding upon a Current Account.

Why is it important to have a Checking Account?

A Checking Account (CA) or a Current Account is a type of bank account that allows account holders to deposit, withdraw or transfer funds from this account. Let us look at some of the features and benefits of such accounts and why it is important to have one:

Cheque Facility

Current Accounts provide holders the facility of making payments by cheques. This facility is not available to Savings Account holders. One advantage of making payments by cheques is that these instruments are accepted by banks both in and out of your banking network, e.g. overseas banks.

Overdraft Facility

Many Current Accounts also offer holders Overdraft facilities. An Overdraft is a credit facility that allows the holder of a current account to draw more than what is in the account up to the credit limit allowed by the financial institution. Overdrafts are great when one is in urgent need of cash to meet an emergency or an immediate cashflow requirement or even to invest in an opportunity that can fast disappear.

Withdrawal of Funds

Current Accounts place no or low restrictions on the number of withdrawals and the amount of each  withdrawal during a given period like a month.

Guarantee

Under the Perbadanan Insurans Deposit Malaysia (PIDM) deposit insurance system a maximum protection of RM250,000 per depositor per member institution is provided. Current Accounts (both conventional and Islamic) are eligible for this coverage.

All the above benefits make Current Accounts a favourite financial tool for business, professional, corporate and organizational customers, especially those who have a large number of transactions in the form of numerous payments/withdrawals and deposits.

Different types of Current Accounts are available and you can take advantage of the type that suits your requirements best:

Personal Current Accounts – are operated in your name.
Joint Current Accounts – are operated by you jointly with others.
Business Current Accounts – are opened in the name of the business and are operated by the nominated signatory(ies).

Islamic Current Accounts

These accounts are Shariah compliant and are based either on the concept of Wadiah (safekeeping of deposit) and may pay Hiba (literally, “Gift”) in lieu of interest or they may be based on the concept of Mudharabah (profit sharing) where instead of gift/interest account holders receive a share of profits from the capital they have invested in the form of deposit.

Foreign Currency Current Accounts

The liberalization of the Foreign Exchange Administrative Rules on the 01st of April 2005 has led to the popularity of foreign currency accounts. Foreign Currency Current Accounts enable account holders to keep foreign currencies for a number of uses including business, investment, education, travel and holiday, for hedging purposes etc.

Hybrid Current Accounts

These accounts combine features of Savings Accounts (interest paying) along with features of Current Accounts (cheque facility).

What is Overdraft Facility?

Overdraft is a credit facility that allows an account holder of a current account to draw more than what is in the account up to the credit limit allowed by the financial institution. It may be called Cash Line, Revolving Credit Facility, Personal Cash Line, Flexi Overdraft, Opti Overdraft, Personal Overdraft or simply Overdraft depending upon the Bank offering the product.

Features & Benefits

* Overdraft can availed up to the limit set. Once the availed overdraft is paid off, the overdraft limit can be availed over again. It thus becomes a revolving credit facility given to a Current Account holder.

* Overdrafts are great when one is in urgent need of cash to meet an emergency or an immediate cash flow requirement or even to invest in an opportunity that can fast disappear.

* An Overdraft is a flexible line of credit. There are generally no fixed monthly repayments. The borrower may repay as per his convenience (of course, interest will be charged) and as long as he is within the limits set, he/she can draw multiple times from the Overdraft.

* Overdrafts can help the borrower avoid bounced cheques if overdrawn.

* Overdrafts are available both in the form of unsecured (without collateral) and secured overdrafts. Secured overdrafts allow for favourable interest rates for the borrowers. Such overdrafts are available against the following:

– Fixed Deposits (FD); such an Overdraft is useful in that the borrower can access cash without breaking the FD which continues to earn interest.
– Pledge of Shares
– Charge on Property
– Home Loan Overdraft

* Overdraft is one of the types of credit facilities reported by financial institutions to the BNM Credit Bureau. Hence, availing overdraft has an impact on credit ratings. Even temporary shortfalls in current accounts (e.g. due to service charge imposed by the financial institution) will be treated as a temporary overdraft even if a current account holder is not explicitly given an overdraft facility.

* The interest on many Overdrafts is referenced against the Base Lending Rate (to be replaced by the Base Rate from 2nd January 2015, as per Bank Negara Malaysia) or sometimes against the Kuala Lumpur Inter-Bank Offered Rates (KLIBOR). Interest on Overdrafts is levied only on the amount availed and is usually calculated on a daily basis.

* However, in accordance with the Rules of Association of Banks in Malaysia, most banks (some products do not carry this fee) levy a commitment fee of up to 1% on the unutilised portion of the approved overdraft limit in excess of RM250,000.

* Islamic Overdraft facilities are also available. These Shariah-compliant facilities may be based on the principles of Murabahah (sale on cost plus margin basis) or Bai Bithamin Ajil (deferred payment sale) or Bai Al Inah (sale and buy-back).