# Current Account: Definition and What Influences It

> **Definition**
>
> The current account of a nation tracks the flow of money into the country and out of it over time, serving as an indicator of its balance of trade and its overall economic health.

## What Is the Current Account?

A country's current account is its record of the flow of money into and out of the country in the form of imports and exports, investment earnings, and foreign aid. The level of a country's current account surplus or deficit has an impact on its employment levels, economic stability, and more.

The United States had a [current account deficit](https://www.investopedia.com/ask/answers/010715/what-difference-between-current-account-deficit-and-trade-deficit.asp) of $303.9 billion in the fourth quarter of 2024.

The current account is one component of a country's [balance of payments](https://www.investopedia.com/terms/b/bop.asp), which includes its [capital and financial account](https://www.investopedia.com/terms/c/capitalaccount.asp). The balance of payments is a record of all international transactions a country's individuals, businesses, and government entities conduct.

### Key Takeaways

*   The bottom line of a nation's current account is the number that shows whether it is bringing in more money from trade and investments than it is sending to other countries.
*   Generally, a current account surplus is considered to be better than a current account deficit but a number of positive and negative factors are considered.
*   A country's exchange rate, pace of economic growth, inflation rate, and government policies all influence its current account balance.

![Current Account](https://www.investopedia.com/thmb/u5lN9tpvNXAGCgOu4rRJdd75U5k=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Current-Account-V3-431cfa216596434da2b2341974201b85.jpg)

*Inflation, exchange rates, and government policies are factors that can affect the current account balance. — Investopedia / Matthew Collins*

## How the Current Account Works

The current account assesses a country's financial transactions with the rest of the world. It includes exports/imports, income from foreign investments, and money transfers.

If a country [exports more than it imports](https://www.investopedia.com/articles/investing/100813/interesting-facts-about-imports-and-exports.asp), it has a trade surplus. If it imports more, it will have a trade deficit. Income from foreign investments includes interests and dividends earned by citizens who own stocks in foreign countries, for example. [Remittances](https://www.investopedia.com/terms/r/remittance.asp) include items such as money sent back home by foreigners or international aid provided to other countries.

### Trade and Services

When Americans import cars from Germany or Japan, wine and cheese from France, and electronics from South Korea, they must pay those foreign companies for these goods, which is a transfer of money out of the country.

Similarly, when Americans export goods to foreign buyers, such as iPhones, those foreigners must pay for these goods, which is an inflow of money. This balance between imports and exports determines whether a country has a trade surplus or deficit.

Similarly, services represent an exchange of money. When international visitors travel to another country, they spend money on food, hotels, and museum tickets. Some countries with strong financial sectors, like Switzerland, earn income by providing banking services to foreigners.

As of January 2025, the U.S. had a trade deficit of $131.4 billion in international goods and services.

### Investment Income

Investment income is a key part of a nation's current account and represents cross-border earnings. It includes earnings from U.S. investments abroad (money coming in) and payments to foreign investors (money going out) with assets in the U.S.

Investment income includes [direct investment](https://www.investopedia.com/terms/d/direct-investment.asp) earnings, portfolio returns, and other interest. Many domestic individuals and companies invest in foreign businesses, stocks, bonds, and other assets, and those investments generate returns.

If a country's population earns more from foreign investments than foreign investors earn from its domestic market, it positively impacts the current account.

The Bureau of Economic Analysis assesses this via "primary income." In Q4 2024, receipts of primary income totaled $366.3 billion, while payments of primary income totaled $363.9 billion; a surplus of $2.4 billion.  

> **Important**
>
> Investors have to report foreign income, including that from investments, on their tax returns.

### Personal/Government Transfers

Personal transfers include remittances sent by domestic workers abroad. For example, a worker in the U.S. sending money back to their family in Mexico counts as a flow of money out of the country.

Remittances can be hugely impactful in economies with citizens who leave to seek employment elsewhere. For example, countries like the Philippines and Mexico receive billions in remittances each year, helping support those economies and increasing local spending and investment.

For example, in 2024, the U.S. sent $62.5 billion in remittances to Mexico, which accounted for 96.6% of Mexico's total remittances.

On the other hand, wealthier countries, such as the U.S., don't receive as much in remittances. Conversely, they spend a significant amount on [foreign aid](https://www.investopedia.com/terms/f/foreign-aid.asp). For example, the U.S. provides the most financial aid in the world, totaling $65 billion in 2023 (latest information) for official development assistance (ODA).  

## Factors that Influence the Current Account

The current account is constantly static and shaped by many factors, including the following:

**Exchange rates:** A country's currency value plays an important role in how competitive its exports are. If two companies make the same products, such as electronics, and the foreign country's currency weakens against the USD, the foreign country's products become cheaper for American consumers, increasing the demand and exports of the foreign country's products. At the same time, American goods become more expensive in the foreign country, reducing the demand for U.S. electronics and decreasing U.S. exports.

**Economic growth:** The state of the economy also shapes the current account. When the economy is strong, consumers and businesses generally spend more, including on imported goods and services. If a country's economy is slowing, then [consumer spending](https://www.investopedia.com/terms/c/consumer-spending.asp) decreases, affecting imports. Similarly, if the economies of foreign countries are booming, their demand for foreign goods increases, boosting exports.

**Inflation:** The movement of prices has a large impact on economies. If domestic prices are rising too fast ([inflation is increasing](https://www.investopedia.com/articles/insights/122016/9-common-effects-inflation.asp)), domestic goods are more expensive than foreign goods. This weakens exports and increases imports. Countries experiencing low inflation would find their goods and services more competitive in foreign markets, leading to an increase in exports.

**Fiscal policy:** Government policies, such as taxes, spending, tariffs, and borrowing all play a major role in the state of the current account. If governments spend a lot on infrastructure without bringing in enough tax revenue, they will need to borrow money. This can attract foreign investors, increasing capital inflows in the short term, but also increase capital outflows when interest needs to be paid. If a country imposes tariffs on a foreign nation, domestic goods become cheaper, reducing the demand for foreign goods and decreasing imports.  

Current Account Balances Worldwide

## Importance of the Current Account

Whether a country runs a surplus or deficit in its current account indicates its financial health. Countries consistently running current account deficits rely on foreign consumers, borrowed money, and foreign investments to facilitate their economies.

This can lead to growing debt, a weaker currency, and economic instability. It can also deter [foreign investment](https://www.investopedia.com/terms/f/fdi.asp), which can lead to an economic crisis if foreign investment slows down or ceases.

Countries with a current account surplus are generally seen as economically strong; however, a surplus isn't always an indicator of smart economics. A high current account surplus may indicate that a country relies too much on exports and does not invest responsibly in domestic growth.

The current account helps policymakers, businesses, and individuals make decisions. It plays an important role in shaping trade agreements, monetary and fiscal policy, spending decisions, and business strategies.  

## The Bottom Line

A current account tracks a country's money flowing in and out of its borders, including trade, investment income, and financial transfers. A surplus means more exports and investment income, while a deficit means more imports and money flowing out, such as through remittances or financial aid.

Factors such as exchange rates, inflation, and government policy all impact the current account, which helps guide economic decisions by all stakeholders, which include individuals, businesses, and government bodies.  

> **Article Sources**
>
> 1.  U.S. Bureau of Economic Analysis. "[International Transactions](https://www.bea.gov/data/intl-trade-investment/international-transactions)."
>     
> 2.  U.S. Bureau of Economic Analysis. "[U.S. International Trade in Goods and Services, January 2025](https://www.bea.gov/news/2025/us-international-trade-goods-and-services-january-2025)."
>     
> 3.  U.S. Bureau of Economic Analysis. "[U.S. International Transactions, 4th Quarter and Year 2024](https://www.bea.gov/news/2025/us-international-transactions-4th-quarter-and-year-2024)."
>     
> 4.  BBVA. "[Mexico | Record in Remittances; 64,745 Million Dollars in 2024, and Dark Spots for 2025](https://www.bbvaresearch.com/en/publicaciones/mexico-record-in-remittances-64745-million-dollars-in-2024-and-dark-spots-for-2025)."
>     
> 5.  Focus 2030. "[Slight Increase in Official Development Assistance in 2023](https://focus2030.org/Slight-increase-in-Official-Development-Assistance-in-2023)."