Free current accounts, as the name implies, are bank accounts that do not charge a regular monthly fee, or a fee for undertaking basic banking transactions such as direct debits, standing orders, depositing or withdrawing money, or using online or mobile banking.
Banks have to make their profits somewhere, though – and, depending on your financial management, a ‘free’ bank account may be quite costly. Furthermore, with many accounts, ‘free’ is only free if you abide by the account’s terms and conditions, such as paying in a minimum amount each month, setting up a minimum amount of direct debits, or using your debit card a specific amount of times in a month. Make sure that you check that you will fulfil the eligibility criteria of any account before you apply.
Perhaps the most significant expense for an account holder who exceeds their balance regularly, and undoubtedly the most significant money-spinner for the banks, is in their overdraft charges. Banks can levy a huge variety of fees and charges on overdrafts, including any combination of a daily fee, a monthly fee, and a variety of interest rates. To add to the mix, some offer a fee-free overdraft up to a set limit, while others offer a small ‘buffer’.
If you are looking to apply for a new bank account and you use your overdraft regularly, it would be sensible to work out which account will be the best for your financial situation.
There isn’t an easy way to pick an overdraft fee structure that is better than the others – it all depends on how often you use your overdraft, how much you tend to go overdrawn, and over what period. For example, if you only generally dip into your overdraft in the last two days of the month before payday, a daily charge may work out cheaper than a monthly fee plus interest – but if you are in your overdraft for the majority of the month, then you may be better off with an interest-bearing charge.
Remember that the overdraft charges that banks advertise are for ‘arranged’ overdrafts, meaning that they need to be prearranged to be activated, and there will be a set overdraft limit in place. If you go overdrawn without an agreement with your bank beforehand, or you exceed any arranged overdraft, you could fall foul to ‘unarranged’ overdraft charges, which are always much, much worse.
When planning a foreign holiday, most of us take time to choose our flights, arrange travel insurance and remember to pack sufficient sun cream (if necessary). But you might not think to inform your bank before you depart, or give a second thought to how much you will be charged in fees for using a debit card abroad.
If you plan to use your debit card abroad to access foreign currency or make foreign purchases, you should inform your bank of the dates and where you are going before you depart. This is not always essential, but it will ensure that any foreign activity on your account will not be viewed as suspicious by your bank. If you don’t tell them, there is a danger that your card will be frozen and you won’t be able to make payments or take out cash.
You should also check the fees connected with spending abroad. Banks can charge a foreign transaction fee (of around 2%-3%) every time you use your debit card abroad to make a purchase, and some can also charge a flat fee on top of this (of around £1 each time). Furthermore, if you use a foreign ATM to take cash out, you could be charged a foreign cash fee (2%-3%) and the aforementioned foreign transaction fee.
If you find that your bank charges excessive fees for using your debit card abroad, check out the rates on dedicated travel credit cards, or perhaps a travel prepaid card. There are cards with fee-free foreign purchases and ATM withdrawals, meaning that the money you save can be spent on an extra sangria or two.
If you have insufficient money in your account to cover a regular payment (direct debit or standing order), or you issue a cheque without enough credit to cover it, your bank could charge you a payment return fee. These charges differ from bank to bank, so it’s always worth checking.
Banks have a further range of charges they impose for other services, outside of everyday banking. These can include:
Issuing a banker’s draft
Special presentation of a cheque (to confirm that a cheque payable to you will be paid)
Paying a foreign cheque (converting to sterling for clearing)
Providing a copy of a cheque
Stopping a cheque
Debit card replacement
Replacement or additional card reader (if applicable)
Providing copies of statements
Making a CHAPS payment
Making a SEPA payment (an electronic transfer within Europe in euros)
Making a SWIFT payment (an international payment outside Europe in another currency)
Requesting a banker’s reference/Status Enquiry (when a third party asks for the bank’s opinion on your financial status)
Requesting a balance certificate
Requesting an annual tax certificate
It’s not all doom and gloom though. The UK banking market is dynamic and highly competitive, which is great news for consumers – and with the seven-day switching guarantee, moving your bank account has never been easier. Banks are always trying to stick out from the crowd to attract new customers, and as they can’t usually compete on price (because they’re free!), free bank accounts can come with a range of goodies to tempt even the most stalwart account holder. Such benefits can include:
Switching incentive (mostly in the form of cash, but sometimes as a gift voucher)
Cashback every month (when you fulfil the criteria)
Cashback when you use your debit card with limited retailers
Enhanced earning of loyalty points (with supermarket or store accounts)
In-credit interest (this is usually limited to a specific amount, and sometimes only offered for a fixed period)
Interest-free overdraft (or small buffer)
Not really. As we’ve discussed above, free bank accounts offer free everyday banking facilities – but they usually charge for other services, such as overdrafts or failed payments. To take the term literally, there is one type of account that is almost free, and that is the basic bank account. This type of account is specifically designed for, and only available to those who are unable to access a standard current account (those who have undergone bankruptcy, or who are new to the UK for example).
Basic bank accounts offer all the standard banking facilities of a conventional account (direct debits, standing orders, withdrawing money from an ATM etc.), but no overdraft. With this type of account, you don’t even pay fees for unpaid direct debits or standing orders. However, while nearly free, there can still be charges for transactions like using your card abroad or making a CHAPS payment.
Since January 2016, basic bank accounts have been offered by the top nine highstreet banks, though they are rarely advertised. If you are interested in such an account, you can search and apply online, by phone, or in-branch. Here is a list of some of the banks which offer basic bank accounts:
Bank of Scotland – Basic Account
Barclays – Basic Bank Account
Clydesdale – Readycash Current Account
Co-op – Cashminder Account
Halifax – Basic Account
HSBC – Basic Bank Account
Lloyds – Basic Account
Nationwide – Flexbasic Account
NatWest – Foundation Account
Royal Bank of Scotland – Basic Account
Santander – Basic Current Account
TSB – Cash Account
Ulster Bank – Foundation Account
Virgin – Essential Current Account
Yorkshire – Readycash Current Account
While free bank accounts let you manage your everyday finances, when choosing an account, you should take a close look at your financial habits, to truly get the best value for money. Paying for an account can offer benefits, both in lifestyle and financial terms, and even prove to be cheaper than opting for the ‘free’ option. For example, if you use your account to pay your household bills, you could opt for a paid account that offers a percentage back in the form of cashback. Or if you hold a large balance in your account for a long period, you could opt for a paid account that offers an enhanced interest rate, or access to a high-interest savings account, which could really make your money work for you.
If you use an overdraft regularly, your search should be different: you should opt for the account that charges you the least for your overdraft usage, taking into account any monthly fee that some paid accounts charge.
Finally, packaged accounts, which offer a range of benefits, including travel insurance, mobile insurance, breakdown cover, and more for a monthly fee, can save you time and money. However, you must ensure that you’re eligible for the benefits on offer, that they are cheaper than purchasing the benefits separately, and that you will actually use them.