Current accounts: the whys, whats and hows

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Most people have a current account for managing their everyday banking, but what's special about a current account and how do you choose the right one for you?

What's a current account for?

A current account is a bank or building society account that allows you instant access to your funds and is designed for everyday transactions.  You can receive payments such as your salary, benefits or pension and pay money via bank transfer, debit card or cheque and make withdrawals from cash machines.  You can also set up standing orders and Direct Debits.

Who can have a current account?

Most UK residents who receive a wage or benefits will want a current account for these to be paid into.  Different banks may have different eligibility criteria for their accounts: some will offer accounts to people aged 16 or over, others may start from 18; some may not be able to offer accounts to people who have recently arrived in the country; and you may be asked to agree to fund the account with a certain amount every month.

If you find that you're not eligible for a bank's advertised current accounts, you may be able to open a basic transactional bank account that will give you many of the benefits of a current account, but without lending features like an overdraft.  It might also be worth seeing if you have a credit union in your area that provides current account services.

Do they cost anything?

Commonly, current accounts don't cost you anything to run if you stay in credit. You'll pay interest if you go into an agreed overdraft and you're likely to be charged a fee if you go into an unauthorised overdraft.  There will also be a list of other fees and charges available from any bank or building society offering current account services.

Some banks and building societies do charge a fee for their current accounts - these are sometimes packaged accounts that come with additional benefits.

Choosing a current account

Comparison sites can be a good place to start if you know what you're looking for in a current account.  They allow you to rank a list of accounts from different providers by key features such as in-credit interest rate, fees and overdraft lending rates.

But there are some important things to think about that comparison sites can't help with at the moment. Consider the following: 

  • Do you need a bank that has physical branches? Is there one in your local town?
    • You could want peace of mind that should you have any problems, you can pop into a branch and speak to someone. This might rule out internet-only banks.
  • Do you do most of your banking via an app on your phone?
    • Most banks offer apps for mobile banking, but it might be worth researching app stores to see what users think of them: some are better than others! If you're a Windows Phone or BlackBerry user, you may find that few banks offer apps for your device.
  • Do you need an account with a high interest rate?
    • Some accounts offer interest on in-credit balances, but if you're someone who tends to run a low average balance on their account, this may not make a lot of difference to you. If you tend to dip in to an overdraft regularly, a lower interest rate on overdraft borrowing might be more important.
  • Do you like the convenience of contactless payments?
    • Check that your account provider offers contactless debit cards. If you use Apple Pay or Android Pay, support for these is still quite limited, so best to make sure that's offered too.
  • Are you concerned about how your money will be invested by a bank?
    • Banks lend the money deposited with them to other people and companies. If you want to be sure that your bank lends to charities and social enterprises, site like Ethical Consumer [needs subscription] can help.
  • Do you want extra services like mobile phone insurance or breakdown cover?
    • If you pay for travel insurance, breakdown cover and mobile phone insurance every year, you might be able to consolidate these with what's known as an added value account. These are current accounts that charge a fee but come with a bundle of additional benefits. These benefits vary between providers, so look for one that meets your needs.
  • Make sure you're covered by the FSCS
    • The Financial Services Compensation Scheme protects you in the event that a financial institution were to go bust. All UK-regulated banks and building societies should be signed up, but some foreign banks may subscribe to alternative legislation. The scheme also has an upper limit (currently £75,000), so if you have more than that held in the bank, it might be worth holding accounts with different providers to maximise your protection.
  • Are there incentives available for opening an account?
    • A number of banks offer cashback-type incentives for opening an account with them. Don't let these distract you from the account itself - always pick one that meets your personal criteria, but if it comes down to two that are very similar, a little freebie might swing it for you!
  • What do existing customers think?
    • One of the best ways to get an idea of how reliable a financial provider is, is to seek out the opinions of their existing customers. A number of businesses now publish feedback on their own websites, but searching for reviews online or browsing forums like MoneySavingExpert can be very revealing.
  • Are you a loyal shopper?
    • In recent years the banking landscape has changed dramatically and there are now a number of supermarkets and high street stores that offer banking products. If you regularly shop with one of these companies, you might find that you can earn additional loyalty rewards by banking with them too.
  • Do you go abroad regularly?
    • If you make payments abroad regularly, check for fees and charges for using your debit card internationally. These can be quite different from one account provider to the next.

Opening a current account

Applying for a current account in the UK is usually quite simple if you've been resident in the country for a number of years and have proof of address, identification and a credit history (the bank will need to check your credit history if you're applying for an overdraft facility). 

You'll find banks that offer the ability to apply online, over the phone, in branch and some allow you to apply within their mobile app.

If you're new to the country, you might find that opening a basic bank account is easier and you can use that to start building your credit history. 

Switching current accounts

If you already have a current account and want to move your banking to an alternative provider, switching could be easier than you think. The Current Account Switch Service was introduced in 2013 to make it easier for people to move their accounts to an alternative provider. You can transfer your existing balance, standing orders, Direct Debits and payees and the process should take no longer than 7 days. The Current Account Switch Guarantee will ensure you're not left out of pocket in the unlikely event that there's a mishap along the way. For more information, see our article on the current account switch service and how it works.

 

A current account will typically be your main interaction with a bank, so it’s worth making sure you consider all the above to help you choose an account that offers the most appropriate features for your needs.

 

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