Current accounts and savings accounts are basically an arrangement to lend money to a bank in the form of deposits, which they promise to keep safe until you withdraw or spend it. That promise is backed by the Financial Services Compensation Scheme, which insures deposits of up to £85,000 per person per banking group.

While having a current account is almost mandatory if you live in the UK, you might think that a savings account is a nice but unnecessary option. In reality, depending on your financial situation, you may benefit from having both types of bank account. Understanding the differences between a savings account and current account will help you decide.

Current accounts

Transactional: Traditional current accounts are transactional accounts, meaning banks expect you to frequently take out money, with few restrictions on the timing or amount of those transactions.

To help make those transactions as convenient as possible, current accounts typically come with the ability to make payments with a debit card, or via mobile banking apps or online banking websites.

Typically fee-free, but watch out for overdrafts and charges: Most current accounts in the UK are fee-free, unless you opt for a packaged current account or reward current account where you’ll usually pay a monthly fee in exchange for cashback, rewards, or other perks.

Banks have to make their money somewhere, though, and that’s usually through overdraft fees – or charges if you try to pay a direct debit or standing order and don’t have enough money in your account.

Read our explanation of how overdrafts work – and if you’re likely to use an overdraft regularly, be sure to get an overdraft current account that doesn’t smack you with giant fees.

No interest payments: Most traditional current accounts won’t pay you any interest, no matter how much is in the account. Many banks now offer a linked high interest savings account, though, which is only available if you have a current account with that bank.

Savings accounts

Longer-term investment: Savings accounts are closer to a form of investment than a transactional account. You’re giving a bank access to your cash, typically for longer periods than with a current account, so they can loan out almost all of it to earn a return.

Harder to spend: Most savings accounts, by design, make it harder to spend your deposited money directly. You may still get a debit card or access to a mobile banking app – but there is often a restriction on how many withdrawals you can make per year, or a minimum deposit threshold that you must exceed. In the case of fixed rate savings accounts, your funds will be completely locked away until the account matures – but you’ll be rewarded with a higher interest rate.

Few fees: With savings accounts, banks make money off the “spread” – the difference between the interest rate they pay you and the interest rate on the loans they fund with your money. Because of that, and the fact that they don’t cost as much as current accounts to administer, banks typically charge little, if any, fees on savings accounts.

Pays interest: With the Bank of England base rate at just 0.5%, the yield on savings accounts isn’t great – but it’s usually better than just keeping your cash in a current account with 0% interest. The best easy access savings accounts will get you around 1.3% interest today. If you can put the money away for a year or two, a fixed rate savings account will get you around 2%. Shop around to make sure you get the best rate on a savings account.

Why you need both

It’s very likely you already have a current account.

While they are a convenient way to pay for things, current accounts are terrible places to save: they usually give you no interest at all, and it can be harder to build up your savings when it’s so easy to spend it!

Getting a savings account, and committing to regularly putting money into it, is a great way to start building up a savings pot that could be used as a mortgage deposit or as your emergency savings fund.

If you’re worried about the hassle of managing multiple accounts, then consider getting a current account and savings account from the same bank – both accounts will usually be linked together through the bank’s mobile banking app, making it very easy to move money around.

Now read our complete guide on how to save money