A current account with a bank or building society can help you manage your day-to-day money.
There are different types of current account. Some offer cashback for paying bills, others pay interest on in-credit balances, some also include free insurance, while others will be fee-free accounts offering basic banking facilities.
All high street bank accounts offer basic banking facilities for free, including:
Checking your account balance and viewing statements
Paying money into or out of an account
Arranging, amending or cancelling direct debits and standing orders
Paying one-off bills or sending money to a friend
Moving money from one account to another
Current accounts should also allow you to:
Switch accounts – you can move from one bank to another within 7 days. This includes all your direct debits, standing orders and payment contacts.
Free online and mobile banking – you can carry out the majority of your banking requirements when you are at home on your computer, or on the move with your phone.
Choosing the best bank account is down to your own personal preference, but ideally you need to have a current account that is suited to your financial habits and your current and future financial situation.
You need a simple account to pay bills from – consider a basic bank account with no overdraft.
You regularly go overdrawn and need access to extra credit – you may be best having a current account with an overdraft facility.
You are always in credit and leave the account in credit – you may want an account that pays interest.
You are in credit and like the idea of earning cashback or having added extras – consider a fee-paying current account.
You should be able apply for a fee-free basic bank account, which offers all the benefits of day-to-day banking, but with no overdraft facility or added extras.
A basic bank account can also be used as a separate joint account to pay bills from if you live with a partner or live in a shared household.
Some current accounts reward customers by offering cashback on your household direct debits. These include council tax, telephone, gas, electricity, TV and broadband.
Tip: These accounts will charge a monthly fee, so you need to calculate the cashback you would be entitled to, given your regular bills, and subtract the fee. That way you ensure the fee does not cancel out any potential gains.
While you should be looking at a high interest savings account for your hard-earned cash, some current accounts also offer access to such savings accounts. The bank or building society will offer a savings account with extremely competitive interest rates on the proviso that you have a current account with them.
Tip: Even if you have a savings account that runs alongside your current account you may have to keep a minimum balance in your current account, otherwise you may not be able to access some of the more competitive rates. If this is the case, you may be better off with a Cash ISA.
If this is the case, your primary concern when looking for a bank account should be a free overdraft facility. Depending on your spending habits, the savings you could make on choosing the correct overdraft facility will far surpass any benefits you can glean from a more rewarding account.
Tip: In 2020 many banks removed interest free buffers and raised their overdraft rates to between 35% and 39.9%. Fee- paying current accounts do still offer interest free buffer zones and more preferential rates of interest. But you need to work out whether the fee will offset any interest you pay on your overdraft.
If you are a student, you may be better off applying for a dedicated student account. These accounts tend to offer benefits and incentives to aid you during your studies, like a free railcard, tiered free overdraft, or tiered interest on your in-credit balance.
If so, it is important that you choose a bank with a branch near your home or workplace.
Once you have ascertained what type of spender or saver you are, you’re ready to select a type of current account. Here’s a list of the bank accounts available in the UK today:
These accounts are designed for those who would not normally pass the eligibility for a more conventional account; if you have a less-than-perfect credit history, or you’ve simply never had credit before.
Basic bank accounts offer all the banking facilities listed above, including online and mobile banking, with the only difference being that they rarely offer an overdraft facility or any form of rewards or benefits. Used well, these accounts are extremely useful for building or rebuilding your credit rating.
Packaged accounts, or ‘paid accounts’ are current accounts that offer you extra benefits, such as travel insurance, breakdown cover, or mobile insurance, to name but a few.
With such accounts there is almost always a monthly fee, ranging from £2 to £20. Some accounts also require you to deposit a certain amount of money each month. Always check to ensure that you can meet the basic criteria before applying.
You should also make sure that you’re eligible for all the benefits on offer. For example, some travel insurances will only cover you up to the age of 70 or charge an extra premium if you’re above a certain age.
High interest accounts pay a higher rate of interest than other current accounts.
The high interest rates paid with these accounts are generally capped to a specified balance limit, or another strict parameter. For example, ‘1.5% on balances up to £20,000’, or ‘3% on balances between £300 and £2,500’.
It’s important to work out what your in-credit balance is likely to be, in order to work out which account will prove to be the most lucrative for you. Some high interest accounts also incur a monthly fee, so it is equally as important that you factor this into any calculations.
While banks don’t label their own bank accounts as ‘low overdraft fee accounts’, this might just be the single most important factor when looking for a bank account if you currently use (and are charged) for your overdraft. The difference between the fees charged by one bank compared to another can amount to hundreds of pounds per year, so be prepared to do your homework.
Some banks charge a flat daily rate, while others offer a buffer amount, then charge an EAR on anything above that, and these EAR rates vary too.
The best way to differentiate between the banks and their charges is to work out how much of your overdraft you currently regularly use (and will likely use in the future), then calculate how much you would be charged by each bank for that facility.
Tip: There can be big differences in the amounts banks charge for going overdrawn, though many banks have now converged on similar, 40% rates after a raft of changes to how overdrafts are charged for. We identify the cheapest in our top overdraft section.
These accounts will also charge a fee. Reward accounts offer some form of reward for banking with them and fulfilling some criteria, such as paying in a minimum amount each month, use your debit card regularly, and/or pay out a particular number of direct debits.
The rewards they offer vary from account to account, and the rates they pay largely depend on either how much you spend, or what you spend your money on.
In order to choose the best bank account for you, work out what you currently spend your money on, and calculate which bank offers the best value over the course of an entire year.
Switching current accounts offer an incentive for switching, usually paid in the form of cold hard cash into your bank account – or sometimes a voucher or gift card for a certain store.
Tip: The number of accounts offering an incentive fell in 2020. As with an incentive you should make sure your account that suits your long-term financial circumstances after the incentive has been paid.