Current accounts are a key part of our day-to-day finances. They provide a place for your salary to be deposited and they also allow you to pay for goods and settle bills.
A current account may offer some, or all, of the following services:
Some accounts offer a range of extra benefits. You normally have to pay a monthly fee for these (see current accounts with extra benefits for more information).
The unique identifier given to all bank accounts. This is typically a series of number with around eight or nine characters.
Standing for Annual Equivalent Rate, this is a method by which you can compare the amount of interest you will earn between different bank accounts if you intend to keep your money in the account for a full year. For example, a bank account with an AER of 5% will pay more in interest than one with an AER of 3%. Bear in mind that not all pay in-credit interest, though you can find a selection of high interest current accounts here.
Originally standing for Bankers’ Automated Clearing Services, BACS is one of the methods by which money can be transferred electronically between accounts and banks. This method includes Direct Debit (taking money from your account) and Direct Credit (adding funds to your account). BACS payments generally take longer to process than the newer, Faster Payments option.
These are fees that banks and building societies make on your account for certain transactions or circumstances. For example, business bank account owners will be used to paying a monthly fee for their current accounts, while personal account owners may be more familiar with overdraft fees. Banks, building societies and other financial institutions should always provide you with clear information on what charges may be levied against your account.
Also known as a ‘bank card’, this is specifically used for withdrawing cash from an ATM (Automated Teller Machine – otherwise known as a ‘cash point’). Cash cards cannot be used to make cashless or contactless payments.
Some banks and building societies have arrangements with certain retailers that will credit you back with a certain percentage of a qualifying purchase. For example, a bank may offer 15% cashback on purchases made by card at a certain restaurant chain or department store. Hence you can expect to get 15% of your qualifying spend back from your bank. Some types of cashback offers can change often or may be available for a limited time only. Cashback can either be claimed against payment made on a card or on payments directly from the account.
Cheques are a payment method that order a bank to pay the named person or company the sum specified on a special printed form. Originally commonplace, payment by cheque is now becoming rarer, with instant electronic payment methods making them largely unused. Current account holders were provided with a cheque book while some banks and building societies now only provide one on request.
A fast and secure method of payment, contactless cards need simply to be held against a reader for a few seconds for the transaction to be authorised. No PIN number needs to be entered. Currently contactless payments are limited to single transactions of £30 or less.
Debit cards allow you to make cashless payments. The card is inserted into the reader and you will need to enter your Personal Identification Number (more commonly called a PIN) to authorise the transaction, or can be used to make contactless payments (see above). Debit cards function as cash cards too.
A simple arrangement made between a third party and a bank to take regular payments from your account. Very often used for goods or services which are being paid for in instalments or ongoing commitments like membership fees. Direct Debits carry a guarantee that if a mistake is made (such as a bank paying too much or making too many instalments) then you will be reimbursed accordingly by making a claim from your bank.
The faster successor to BACS payments, these transactions are almost immediate, allowing the instant transfer of funds between accounts. In some circumstances the payments can take up to two hours to process but this is rare, and still much faster than the three days seen with BACS payments.
Banking via the internet allows you to carry out a host of transactions without the need to physically visit the bank. The great advantage to this is the availability of services 24/7 – even on weekends and bank holidays. Examples of this are transfers, checking a balance, ordering a statement and even banking cheques. However, as this is a relatively new technology some customers who may lack access to the internet or simply prefer dealing face to face still like to attend a branch to carry out their banking needs.
This is a loan facility offered by banks and building societies to current account holders. Primarily these are intended for short-term or emergency needs – it’s important to remember that overdrafts are a debt and providers will often charge fees for their use, as well as being subject to quite high rates of interest. There are two types of overdraft: arranged and unarranged. Arranged simply means that the bank has agreed in advance that you will have a specified overdraft limit on your account – providing you stay within that overdraft limit you will be subject to normal fees and interest. An unarranged overdraft is where you spend more money than you have in your account or go over your arranged limit without agreeing it in advance. Fees, charges, penalties and interest rates for these can be much higher, although higher fees for unarranged overdrafts are being banned from April 2020. The excess charges can mount up very quickly, meaning you may have to pay back significantly more than your original overspend.
Benefits and rewards
Some current accounts offer ‘benefits’ as part of their package of offers. This might include a reward such as accruing Airmiles or cashback on everyday spending, or long-term benefits such as discounted offers for membership of breakdown services, or free gadget insurance. Accounts with a benefits package often come with a monthly fee.
Sort codes are six-digit numbers that are broken up into three pairs of digits. They are a unique identifier for each branch of every building society and bank – hence they are often requested when setting up financial transactions such as Direct Debits. The sort code allows other banks to identify exactly which office is your ‘home’ branch where your account is held. Online only banks will have a single sort code for all their customers.
Standing orders are an instruction to your bank to pay a set amount at regular intervals to another individual or business. Typically, these can be things such as a monthly transfer of a set amount from your current account to a savings account or to pay for something on a regular basis, such as rent.
This is the name for individual operations such as cash withdrawals, card payments, money transfers, Direct Debits, standing orders, cheque deposits/withdrawals, etc. A statement will detail all transactions in your account for a set period – usually monthly.
As most people use a current account for their day-to-day money management it’s critical that you find one which suits your needs. Pay careful attention to what a bank or building society is offering, what charges (if any) you will be expected to pay and what additional benefits the provider may include.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.