Current accounts: what to check
Current accounts are a central part of our everyday lives.
They're where our salaries are paid, where we get the cash for the grocery shopping and, just generally, where we store and access our day to day money.
Yet consumers lose thousands of pounds every year by making the wrong current account choices: being over charged for overdraft facilities or making less than they could be in interest rates.
Avoid those problems - and even get rewarded! - with our checklist .
1. Sometimes overdrawn? Check overdrafts
Those that use an overdraft facility, even occasionally, need to take this into account when opening a new current account.
- Sometimes overdrawn? Check overdrafts.
- Never overdrawn? Interest and rewards.
- Account types.
- Customer service.
For those with balances that are always healthy, however, it may not be worth having this facility in place: most current account providers now force consumers to choose between an overdraft and rewards such as interest. In that case, skip to the next section.
Otherwise, read on to save.
Interest free overdrafts
Interest free overdrafts - even up to a certain amount or with a set time period of repayment - are increasingly rare.
Many accounts only extend them as introductory offers for a year or even just the first few months after the account is opened.
Most have monthly minimum payment thresholds (e.g. '£1,500 must be paid into the account each month') which could exclude those on lower salaries.
Authorised and unauthorised
Checking both authorised and unauthorised overdraft charges is a checklist must.
Many accounts now advertise their overdrafts as 'interest free' yet they charge fees per day that could be much more expensive than what sounds like a hefty APR.
|Amount overdrawn||Overdraft conditions||Cost 2 days overdrawn||Cost 7 days overdrawn||Cost 1 month overdrawn|
|£1,000||£1 a day, £30 month max||£2||£7||£30|
As you can see, such fees can be particularly poor value when the overdraft amount is only fairly small as, for those who just need a little extra help at the end of the month, it usually is.
Note that some banks do provide preferential treatment for existing customers. For example, in January 2011, Santander rolled out overdraft fee changes that favoured loyal customers.
However, it's also worth researching which accounts will charge for going into an unauthorised overdraft or for making subsequent transactions once borrowing using either form of overdraft.
There will usually be an on the spot charge for going beyond the overdraft limit, but the severity of these charges will vary from one account to the next.
These charges can be spectacularly high and, although account holders can apply for an authorised overdraft during the current account application process, the bank is not obligated to extend this.
It's subject to the same credit checks as any other form of borrowing.
2. Never overdrawn? Interest and rewards
On the other end of the spectrum, cash is always flowing into an account much faster than it's flowing out, interest rates and rewards are worth thinking about.
In credit interest
Any cash left in an account for long periods of time has the potential to grow.
Those that are likely to have a constantly high balance then it's worth going for a current account with the highest interest rates which make the most of surplus cash.
The difference can be as much as 5%, a significant amount no matter what the account balance is.
Some current accounts can even offer better interest rates than savings accounts: for the best options now, see our top interest earning current accounts guide.
Like overdrafts, interest rates can also be part of introductory offers, the rates decreasing severely after a certain period.
It's well worth checking the small print carefully for these crucial details.
Loyal customer who are always in credit then may also want to consider the rewards attached to new current account.
These could be anything from cash bonuses to special insurance rates to general deals only available to account customers.
See this guide for current deals from cash bonuses to cash back on day to pay purchases.
Don't be drawn in by just the rewards though. Account holders can easily lose out overall if one of the other features of the account isn't fully suitable.
3. Account types
Another question worth asking is 'will my application be accepted'?
Some may require current account require holders to pay in a minimum amount each month, or make a minimum amount of transactions.
Some accounts, usually calling themselves 'premium' or a similar word implying a superior service, also offer certain privileged facilities for a charge every month.
Whether these accounts are worthwhile will completely depend on how many of the benefits are actually put to use, however.
Many bundled extras such as identity theft insurance or mobile phone insurance that are often unnecessary either because the cover they offer is slight and unlikely to ever pay out or because it duplicates cover offered by home insurance policies that most people have already.
In all cases packaged accounts are definitely worth researching first.
There are also special current accounts on the market for students, young people and graduates.
Student and graduate accounts are usually more lenient than other current accounts, offering interest free overdrafts for long periods of time and enticing introductory bonuses.
These can include student railcards, cash incentives, CDs, DVDs or even USB drives.
However, the overdraft is really the essential for those at university and is the feature worth considering carefully.
Poor credit options
Those with current or past credit problems might face rejection from the mainstream current accounts we have discussed so far.
For them, overdraft free basic current accounts can be the best option.
These are essentially 'jam jar' accounts: a place to keep money without offering borrowing or other benefits.
See our guide to basic bank accounts for more on this.
Those with poor credit may also be offered managed bank accounts: a form of packaged account including intensive money management. See our guide to those accounts here.
4. Customer service
Finally, the same is true whether we're in a restaurant or looking for a current account - there are banks that take a lot of care over their customers and some who do not.
Those that value a bright welcoming smile and a fast and friendly service, may want to consider the customer service element carefully before applying.
But this goes further than how staff greet you when you walk into a branch.
- Is their telephone service fast and informative?
- Do they have a fully functioning internet banking site that never crashes?
- How often do they send you bank statements and in what format?