What is the Difference Between a Current Account and a Capital Account?

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As a result of globalization, world economies have become interconnected. To measure the performance of the trade and investments, and to determine the capital inflow and outflow of the country, the Central Banks like the Reserve Bank of India follow the ‘Balance of Payment’ (BOP) method. The Balance of Payment (BOP) is used to check all international financial transactions of a country within a specific period. The two major categories of the BOP are the current account and the capital account.

A current account is a component of ‘Balance of Payment’ that deals with the trade of goods and services between two countries. On the other hand, the capital account is a component of BOP that deals with capital investments and expenditure of one country with another. Ahead, we have enlisted some of the major differences between a capital account and a current account.

Difference between a current account and capital account

  • A current account measures the country’s inflow and outflow of goods and services, whereas a capital account measures the inflow and outflow of capital in the economy
  • A current account evaluates the trade status, i.e. trade surplus or trade deficit of a country. On the other hand, a capital account measures the net flow of investment transactions
  • A current account impacts the net income and output of the country, whereas a capital account impacts the foreign assets and liabilities of a country
  • A current account deals with disbursements in cash and non-capital items, whereas a capital account deals with the source and use of the capital
  • The primary components of a current account are export and import of goods and services, investment incomes, unilateral transfers such as international aid. On the other hand, the key components of capital account are Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), and loans provided by the government to other countries

To sum it up, a current account reflects all the payments made or received in respect of goods and services, and a capital account is a part of BOP that reflects all payments made or received by clearing old debts or creating new debts.

However, the term Current Account could mean a completely different thing for an individual. This can be a bank account that businesses can avail for smooth functioning of the business.

If you are a business owner, you can consider opening a current account online to carry out your business transactions in a smooth and hassle-free way. The steps to apply for a current account are mentioned below:

Step 1: Visit the bank’s official website.

Step 2: Fill in the application form required to open a current account.

Step 3: Upload the digital copy of required documents such as address proof, ID proof, business continuity proof, etc.

Step 4: The details will be verified instantly, and you will be able to use your current account shortly.

A current account facilitates banking transactions and helps in running business smoothly. It helps you segregate your business finances from personal finances. Moreover, a current account will reflect your seriousness towards conducting business, thereby contributing towards business growth and progress.