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How to find the best current account

Written by Sebastian Anthony

There is no ‘one size fits all’ when it comes to choosing the best bank account. Whether you want an account that rewards you for paying bills, pays interest on your in-credit balance, or simply a completely fee-free account that offers basic banking facilities, the UK bank account market has it all. Furthermore, with the UK’s seven-day current account switch guarantee, switching bank accounts has never been simpler. If you are dissatisfied with your current bank, simply fancy a change, or want to pick up a free cash incentive, now is the time to shop around.

How do you choose a bank account?

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.

  • Seven-day switching – move from one bank to another (including all your direct debits, standing orders and payment contacts) effortlessly.

Further to this, most bank accounts offer free online and mobile banking, meaning that 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 personal preference, and ideally should be based on your own financial habits, and what your financial situation is likely to look like in the future. Before jumping in and applying for an account, you should carefully consider what you need from a bank account, then what you want, and finally, what you are willing to do, or pay, to get one.

To get the most out of a new current account, you should ask yourself questions like:

Do you have a poor credit rating, or no credit history whatsoever?

If so, you may be declined a conventional bank account – but you can then apply for a fee-free basic bank account, which offers all the benefits of day-to-day banking, but with no overdraft facility.

Will you use your chosen bank account to pay all your household bills?

If so, it may be worth checking out reward accounts that offer cashback on your household direct debits (council tax, telephone, gas, electricity, TV, broadband). Such accounts are usually lumbered with a monthly fee, so it’s worth totting up all the cashback you would be entitled to, given your regular bills, and factoring in the fee, to ensure that the fee does not cancel out any potential gains.

Do you always have surplus income every month?

It may be worth looking at a high interest savings account for your hard-earned cash, but some current accounts offer access to such accounts with extremely competitive interest rates on the proviso that you have a current account with them.

Are you always in your overdraft, month on month?

It 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.

Are you a student, or are you likely to become a student in the near future?

If so, you would probably be better off applying for a dedicated student account, as they 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.

Do you prefer dealing with your banking requirements in-branch, as opposed to using online or mobile banking?

If so, it is important that you choose a bank with a branch near your home or workplace.

Different types of current account

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:

Basic bank accounts

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, as timely payment of your bills will be reported back to the credit reference agencies. This proof of good financial management will go some way to improving your chances of more competitive credit in the future.

It should be noted that you probably won’t be offered a basic bank account unless you fail to meet the criteria for a standard current account – because banks don’t make any money from such accounts.

Packaged accounts

Packaged accounts, or ‘paid accounts’ are current accounts that offer you extra benefits, such as travel insurance, breakdown cover, mobile insurance, or discounted goods or services, 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.

Perhaps even more importantly, check that you actually want or need the packaged account benefits. Are you paying for mobile phone insurance when you don’t own a phone, or have it separately insured? Or shelling out for breakdown cover when you don’t own a car?

Finally, you should shop around for each individual element offered by the packaged account, to ensure that your chosen bank is offering a good deal, or whether you could get it cheaper (or get better cover) elsewhere.

High interest accounts

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 in to any calculations.

Don’t let your excess money languish. If you have money in your current account over and above any interest-bearing level, look to move it to a savings account, either with the bank you choose, or better still, shop around for the best rate to maximise your return.

And finally, unless you are willing to regularly switch accounts, take a look at what interest rate you’ll get after any promotional rates have expired: it’ll probably be close to 0%.

Overdraft current accounts

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.

Cashback and reward accounts

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 amount 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.

Some of these accounts incur a monthly fee, which should be included in any calculations.

Again, look for any offers that come with expiry dates, as these may not be as lucrative as other accounts that offer ongoing rewards.

Switching incentive accounts

Switching current accounts offer an incentive for switching, usually paid in the form of cool, hard cash into your bank account – or sometimes a voucher or giftcard for a certain store. You usually have to use the seven-day switching service, which can be selected when you apply for the account, to qualify for the full switching incentive.

With these accounts, the best switching incentive is usually the one that pays the most, but don’t be completely blinkered by tempting offers. Look at all the account benefits and charges and fees, and ensure that you’ll still have an account that suits your financial circumstances after the incentive has been paid. Or, of course, be ready to switch accounts again…