Comparing Nodal, Escrow, and Current Accounts: Which is Best for Your Business?

Posted on Friday, September 6th, 2024 | By IndusInd Bank

Choosing the right bank account is crucial for any business, but the options can seem overwhelming. Three common types of business accounts are nodal, escrow, and current accounts. Each serves a specific purpose and understanding their differences is key to making the right decision for your financial needs.

Nodal Account – What is It and Do You Need It?

Let’s understand the meaning of a nodal account first.

• A nodal account is a type of bank account mandated by the Reserve Bank of India (RBI) for intermediaries involved in payment processing.

• The meaning of ‘nodal’ refers to a central point of control or connection. In banking, a nodal account acts as a vault for storing funds until they are transferred to the final recipient.

• Along with the meaning of a nodal account, one must understand its usage as well. Nodal accounts are crucial for businesses that deal with large volumes of transactions on behalf of their clients. This includes e-commerce platforms, payment gateways, and service aggregators.

• A nodal account can help businesses with operations, such as collecting payments from customers and disbursing them to different parties.

Escrow Account – What is It and Do You Need It?

• An escrow account is an arrangement where a third party holds and regulates the payment of funds required for two parties in a transaction.

• Escrow accounts help ensure security and trust in transactions that involve sizeable sums of money or complex agreements.

• This type of account is used in situations where either parties want to ensure the terms of the contract are met before the final payment is released.

• Let’s understand this better with an escrow account example:

During a real estate deal, the buyer uses an escrow account to deposit the purchasing amount. The funds are held there until the seller satisfies all the conditions of the sale, such as inspections and approvals. Once those are done, the escrow account permits the release of the money to the seller.

Now that you have gone through the meaning and example of an escrow account, let’s understand current accounts as well.

Understanding Current Accounts

• A current account is a type of bank account for businesses and individuals who deal with frequent transactions.

• It offers features such as a higher limit of deposits and withdrawals, overdraft facilities, and access to various other banking services.

• Current accounts do not earn interest, as they are meant for managing day-to-day business finances rather than savings.

• Current accounts are ideal for businesses to manage their financial transactions, including receiving payments, paying vendors, and managing payroll.

Also Read: What are the Transaction Limits on an Online Current Account?

Which Account is Ideal for You?

Choosing the right account depends on the nature of your business and its financial requirements.

1.      Nodal Account

• Ideal for businesses that process payments for multiple parties, such as an e-commerce platform or payment gateway.
• Helps comply with regulations and ensures funds are securely settled.

2.      Escrow Account

• Ideal for businesses that require contract-based payments such as real estate deals or service agreements.
• Provides security and trust.

3.      Current Account

• Required for businesses that need frequent access to funds for daily operations.
• Offers flexibility, unlimited transactions, and various banking services.

Conclusion

Understanding the meanings of nodal, escrow, and current accounts and their usage is crucial to choose the right account for your business. Assess your business model and financial needs to decide which one is suitable for you. 

If a well-designed current account is what you are looking for, then look no further than IndusInd Bank. We offer industry-specific current accounts, a customised account number that reflects your business identity, flexible cash deposit limits, digital payment solutions (QR, PoS, Soundbox, Payment Getaway, etc.), doorstep banking services, and more.

Open a current account with IndusInd Bank today!

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.