Current accounts: what to check

emily gorton
By Emily Gorton

checklist

No product is more essential to our everyday lives than the current account. Choosing the wrong one can be a costly mistake.

Here we show consumers how to get the most out of a current account with interest payments and other rewards, and how to avoid extortionate overdraft and account fees, with our short 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.

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

Most bank accounts allow overdrafts to be set up albeit subject to approval. The credit limit and charges for this facility will vary for each account holder.

However, checking both authorised and unauthorised overdraft charges in advance of opening an account is a checklist must.

This includes interest charges for being overdrawn plus spot penalties for going into an unauthorised overdraft in the first place or going beyond an authorised limit.

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.

For example:

Amount overdrawn Overdraft conditions Cost 2 days overdrawn Cost 7 days overdrawn Cost 1 month overdrawn
£500 18% EAR £0.45 £1.59 £6.85
£1,000 18% EAR £0.91 £3.18 £13.70
£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.

For details on how to reduce overdraft costs go to this guide here. Or for a more in depth look at overdrafts take a look at this article.

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.

For 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.

Here's a couple of the best high interest current accounts currently on the market:

  • 3% AER variable interest on balances up to £1,500
  • No monthly fees
  • Earn £5 cashback for having two direct debits per month, plus another £5 cashback if you spend with your debit card 20 times a month
  • 5.00% AER in-credit interest on balances up to £2,500 (fixed for the first 12 months)
  • No arranged overdraft fees for the first 12 months
  • No monthly fee
  • No monthly account fee if you pay in £1,500 per month, otherwise it costs £3 per month
  • Earn 2% AER variable credit interest on balances between £1 - £5,000
  • Exclusive access to banking offers

Rewards

Loyal customer who are always in credit may also want to consider the rewards attached to a current account.

These could be anything from cash bonuses to special insurance rates to general deals only available to account customers.

The Santander 123 Lite Current Account offers cashback on selected household bills although with this account a £1 monthly fee does apply.

  • 1% cashback on water, council tax and Santander mortgage payments (£1,000 max mortgage payment)
  • 2% cashback on gas and electricity bills
  • 3% cashback on mobile, home phone, broadband and paid for TV packages

Meanwhile the Halifax Reward account gives new customers £75 cash back just for switching. While M&S Bank are giving those who sign up to their Current Account a £185 gift card to spend in store.

  • £3 reward each month: pay in £750, have at least two direct debits and stay in credit
  • £75 cashback when you switch to Halifax
  • £50 overdraft buffer (subject to status)
  • Access to 5% AER savings account if you switch
  • £185 M&S gift card when you switch and stay
  • Minimum £500 overdraft at account opening (subject to status)

For details on cash back rewards for paying bills go to this guide or to learn about cash bonuses available for switching accounts go here.

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 banks may require current account holders to pay in a minimum amount each month, or make a minimum amount of transactions.

Packaged accounts

Some accounts, usually calling themselves 'premium' or a similar word implying a superior service, also offer certain privileged facilities for a charge every month.

What's on offer varies between providers: Natwest's Reward Silver account offers holders the chance to get cash back on bills paid by direct debit as well as ticket purchases for various events including theatre shows, concerts and more.

  • Get 2% back in Rewards on 7 types of household bills if paid by Direct Debit.
  • On average NatWest customers earn £83 in Rewards per year. Based on monthly bills of £345 excluding the monthly £12 fee.
  • Includes many lifestyle benefits such as European multi trip travel insurance, preferential rates on travel money, mobile phone insurance & tastecard membership.

While the TSB Platinum Account comes with the promise of no fees on a planned overdraft of £300 in addition to travel insurance, AA breakdown cover and card protection.

  • Pay no fees or interest on a Planned Overdraft up to £300, subject to application and approval
  • Includes Mobile Phone Insurance, Sentinel Card Protection, Aviva Travel Insurance and AA Breakdown Cover
  • £17 monthly fee

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 albeit with caution.

Special accounts

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.

For more on student accounts head to our dedicated guide.

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, a basic current account may be the best option.

These are essentially 'jam jar' accounts - a place to keep money without offering borrowing or other benefits - and come without many of the perks mentioned so far.

Although there's no overdraft as such with these accounts, a few do offer a 'free every day banking' facility, which means no penalty should you go overdrawn.

  • Free everyday banking
  • Visa debit card
  • Online, Mobile and Telephone banking
  • Free everyday banking - no monthly fees, or charges if you accidentally go overdrawn
  • Visa debit card
  • Internet, Mobile and Telephone banking

Like with "free overdrafts", the advertising is a little misleading though, this facility isn't completely free and if an account holder goes overdrawn a daily interest fee will be applied.

Some do boast special features that make it easier for account holders to manage their money though. For instance, the Santander Basic Current Account comes with a top-up debit card linked to the account, which can be topped up with money from the account, allowing holders to separate money set aside for bills from other expenditure.

  • Simple banking with no account or overdraft fees
  • A top-up debit card to separate your spending money from the money you set aside for bills, and help you control spending
  • 24/7 access to your account using Online, Mobile and Telephone Banking

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.

Our customer service feature considers this issue in more detail and we have another guide focused on online banking.

To compare different current account options head to our main comparison table, which includes accounts for all the categories detailed here. Use the search facility to search according to specific needs.


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