At a glance…current accounts
Your current account is the basis for all your financial transactions, so it makes sense to look around for the best deal
Virtually every adult in the UK has a current account of one sort or another, and these accounts make up a vast majority of high street banks’ business. Yet while customers tend to choose one institution and then stick with it through thick or thin, there is a wide variation in the different types of account available, each with there own positives and negatives.
Basic accounts
These accounts are – in theory at least – available to anyone, regardless of their financial history. They will usually pay a small amount of interest on any credit balance and will not allow any overdrafts.
You’ll get an Electron or similar card, which allows you to use cash machines and pay for items electronically provided you have the funds in your account. You’ll also be able to set up standing orders and direct debits.
These accounts are designed to help people who may be turned down for a more varied account because of their credit history. It’s not just for those on benefits, or pensions, but as these are now paid electronically, the accounts were set up to help them get their money. If you have had credit problems in the past, signing up to one of these accounts may be your only option.
Debtor or creditor
When looking for a current account, you need to work out what sort of customer you are going to be. Most importantly, are you going to be mostly in credit, or mostly in your overdraft?
Many banks offer two different kinds of account, depending on the type of customer you are. One will have a preferred in credit rate, for those who usually keep their accounts in the black, while the other account is a preferred overdraft rate, with lower interest rates for when you are in the red. Whichever account you choose, however, you need to be sure to have an authorised overdraft when you use it, or you’ll start to incur some hefty charges.
Charges
Most normal accounts are basically free to use – the bank makes money from it by paying you very little interest on credit balances, while charging you for overdrafts. It will also hope to sell you subsidiary products, like loans, credit cards, mortgages and insurance.
But the real cost of having a current account comes when you overspend. If you go beyond your overdraft limit, have a standing order or direct debit returned or bounce a cheque, the bank will really start to levy those charges – often over ?30 a time. And once you incur one charge, it’s very easy to incur another, then another and so on.
Internet only
Online only accounts have been around for some years now, and often offer better rates of interest or lower charges. Most of them are backed up by call centres and you can use a certain branch network – with First Direct it’s HSBC and with Smile is the Co-operative Bank, for example.
Enhanced account
Premium accounts are on offer from most banks. For a monthly fee, you get a range of benefits. These can include higher interest rates on credit balances, lower overdraft fees, travel and motor insurance and even access to business lounges at airports.
While some of these benefits can be very attractive, it’s worth doing your sums before you sign up. It may be cheaper, for example, to source your travel insurance separately than pay a monthly fee for one included in the account. If you plan on using all the features of the enhanced account then you’ll probably save money. If it’s only one or two of them, you’re probably better off getting them separately.
Switching
While most people are now used to the idea of switching mortgages, energy providers, credit cards and the like, those who switch bank accounts are in a real minority. But it’s now easier than ever to do. Most banks offer a switching service, where they do all the work – all your direct debits and standing orders are transferred automatically and you often get a free overdraft to help you through the switching process.
If you can get a better deal elsewhere, it really is worth making that change.
