Pick the current account whose free cash deposit limit matches your cash turnover. Nothing else in the brochure moves as much money. Current accounts pay no interest, so there is no yield to compare. What varies is the cost of running the account. Cash handling is usually the largest line in it.
Check one rule before you shortlist anything. If your business already has a cash credit or overdraft facility, you may not be allowed a separate current account at all.
Why do current accounts pay no interest?
The Reserve Bank’s deposit rules bar banks from paying interest on a current account. That is a rule, not a bank policy. So a current account is a cost centre. You are not choosing a return. You are choosing a price list.
This is the reason a “premium” variant is rarely better. A higher balance requirement buys a higher free cash limit and a few waived charges. If your cash volumes are small, the higher balance is dead money.
Can you open a current account if you have a cash credit or overdraft?
Often not. The RBI circular of 6 August 2020 stopped banks opening current accounts for borrowers who have a cash credit or overdraft facility. All transactions were to route through the CC or OD account instead.
The RBI relaxed this on 29 October 2021. Where the banking system’s total exposure to the borrower is below ₹5 crore, there is no restriction. The bank takes an undertaking from you. Above that threshold, the routing rules bite and your choice of bank narrows sharply.
So the honest first question is not which account is best. It is which accounts you are eligible to open at all. Ask your lender before you apply elsewhere.
What does the free cash deposit limit actually cost you?
Every bank gives you a monthly free cash deposit limit. Beyond it, you pay a charge per ₹1,000 deposited. Add 18% GST on top of that charge.
Banks set the limit in one of two ways. Some give an absolute rupee cap each month. Others give a multiple of your average monthly balance. The second form is the one that catches people. Your free limit shrinks in a month when your balance dips.
Work out your own number first. Take a normal month of cash deposits. Compare it against the free limit. Then price the excess. On a cash-heavy retail business, this single line can dwarf every other charge on the account.
How is the average monthly balance penalty calculated?
The average monthly balance is the average of your daily closing balances across the month. It is not the balance on any one day. So a single large outflow near month-end can drag the average below the requirement.
The penalty is usually a slab based on the shortfall, not a flat fee. GST at 18% applies to it. Read our page on minimum balance penalties for how these slabs are built.
Which charges should you compare, and in what order?
| What to compare | What it means | Where to find it | Why it matters |
|---|---|---|---|
| Free cash deposit limit | Cash you can pay in each month at no charge | Schedule of charges, cash handling section | Biggest cost for any cash-heavy business |
| Cash deposit charge beyond the limit | A rate per ₹1,000, plus 18% GST | Same section | Scales with turnover, so it compounds |
| Average monthly balance | Average of daily closing balances | Account variant page | Locked-up working capital has a real cost |
| Non-maintenance penalty | Slab charge on the shortfall, plus GST | Schedule of charges | Recurs every month you slip |
| Free cheque leaves | Leaves issued free each quarter or year | Schedule of charges | Matters only if you still issue cheques |
| NEFT, RTGS and IMPS charges | Per-transaction fees on outward transfers | Schedule of charges | High-frequency payers feel this |
| Cash withdrawal at non-home branch | Charge for withdrawing outside your branch | Schedule of charges | Bites if you operate across cities |
| Doorstep cash pickup | Optional collection service fee | Business banking page | Often cheaper than staff time |
Why this page does not rank banks by a headline number
We do not publish a table of average balance figures or free cash limits here. Banks revise them, and they differ by account variant and by city tier. A number we cannot stand behind is worse than no number.
What does not change is the method. Price your own cash volumes against each bank’s published schedule of charges. That document is on every bank’s website and it is the only source that binds them. Our bank charges compared page explains how to read one.
If you are also shopping for credit, read working capital loans first. The lender you borrow from will usually want your operating account too, and that decides the current account for you.
Frequently asked questions
Do I need a current account for a sole proprietorship?
You need one if you trade under a business name. Banks will not credit a cheque made out to your firm into a personal savings account. Most banks ask for two proofs of business existence. A Udyam registration and a GST certificate are the usual pair.
Is a zero-balance current account genuinely free?
Rarely. The balance requirement is usually replaced by a monthly or annual fee. Sometimes it is replaced by a much smaller free cash deposit limit. Compare the total cost over a year, not the headline.
Can a bank refuse to open my current account?
Yes. The RBI’s 2020 rules on current accounts restrict banks where you already have a cash credit or overdraft facility from the banking system. Banks can also decline on their own risk policy. That is a commercial decision and the Ombudsman will not review it.
Does GST apply to bank charges?
Yes, at 18% on almost every banking service charge. Always add it before you compare two banks. A charge quoted as ₹100 costs you ₹118.
How many current accounts should a small business hold?
One operating account is enough for most firms. A second account at a different bank is useful only for redundancy. Every extra account carries its own balance requirement, and idle balances cost you working capital. See our business compliance calendar for the filings each entity must keep up regardless.
Sources
- Reserve Bank of India, Master Direction on Interest Rate on Deposits — banks shall not pay interest on current accounts. rbi.org.in
- Reserve Bank of India, RBI/2020-21/20 dated 6 August 2020, Opening of Current Accounts by Banks. rbi.org.in
- Reserve Bank of India, clarification dated 29 October 2021 — no restriction below ₹5 crore banking system exposure. rbi.org.in
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