What is current account?
A current account is a type of financial account used primarily by individuals and businesses to manage day-to-day transactions. It is also known as a checking account, so named because the holder can easily access (or "check") the funds in the account through various transaction methods. Current accounts are typically offered by banks and other financial institutions and may come with features such as debit cards, online banking, and overdraft facilities. Users can make deposits, withdrawals, transfers, and payments from this account without limit, and the account balance fluctuates based on these transactions.
The current account is a component of a country's balance of payments, which records the transactions between the country and other nations during a specific time period, typically one year. It consists of four main categories:
1. Trade balance: This includes the exports and imports of goods, such as manufactured goods, raw materials, and agricultural products.
2. Services balance: This category covers transactions related to services, such as tourism, transportation, financial services, and intellectual property rights.
3. Income balance: It accounts for money earned from investments abroad (such as dividends, interest, and profits) and payments made to foreign investors.
4. Current transfers: These represent unilateral transfers of funds between countries, such as foreign aid, remittances from abroad, and grants.
The current account provides valuable information about a country's international trade and overall economic health. A surplus in the current account indicates that a country is exporting more than it is importing, while a deficit suggests the opposite.