Published: 01/03/2019

At a glance

  • A current account is a convenient place to receive and spend money, with easy access through a debit card and online banking or your local branch.
  • Key factors to consider when choosing your current account are: fees, funding requirements, credit interest, overdraft charges and accessibility.
  • Make sure you’re still getting the best deal by reviewing your account features every once in a while.

A current account is a bank account that allows you to access a range of everyday banking services, such as receiving money (like your salary, pension or benefits payments), paying bills, and setting up direct debits and standing orders to make regular payments.

The nature of these accounts differentiates them from savings accounts, which could also be considered bank accounts but are not generally used directly for receiving and spending cash. A current account will typically give you a cash and/or debit card and a chequebook and may also have an agreed overdraft facility (essentially a form of credit should you need it).

Aside from the basics, there are many options to choose from when it comes to how you want to run your account – which is only natural as everyone has different needs and desires. These are catered for through a variety of accounts and account features.

What is a current account?

For a more comprehensive overview of the different account types, go to the main bank account page and scroll down for a general banking guide.

Some current accounts offer a high rate of interest, but this is usually only payable on the first few thousand pounds in the account and will require a certain amount of money to be paid in per month. Most accounts can be accessed in various ways, such as in branch, via the internet, by post and by telephone. Some accounts can also be accessed at the Post Office and many can now be operated via smartphone app.

Having a bank account can be a gateway to accessing other financial products, such as credit cards or mortgages where the providers need to be sure that repayments can be made. They will probably look at how you have run your bank account as part of their credit checking process.

Who is a current account suitable for?

A current account suits anyone who wants or needs full access to the banking system. People with either no credit rating, or who have had credit problems, may not be granted a current account, but should be able to get a basic bank account.

There are various account types to suit different people. The exact current account that would be most suitable to your needs will depend on several circumstances but given the number of accounts available on the market, there should be a suitable deal to be found. As account perks and features change over time, it’s probably a good idea to keep an eye on the market and consider changing your account if you’re not getting the most out of your current one.

Did you know? Thanks to the Current Account Switch Service, it’s now easier than ever to change your current account – within seven working days.

Key factors to consider

To find a suitable current account, look out for the following:

Fees

Some accounts charge a fee, normally to offset the cost to the bank of some other benefit available with the account, such as a lower overdraft rate, higher interest for in-credit balances, or a higher overdraft buffer amount. Depending on your circumstances, the extra features could outweigh the fee, making it beneficial regardless.

Other benefits that may be available on packaged accounts with a monthly fee are travel or breakdown insurance, discounts in certain shops or access to executive lounges at airports. While these extras could add up, remember that free banking is still widely available, so don't pay for things you don't need.

Funding requirement

You may be required to pay in a minimum amount of money per month. Usually, this restriction is applied to high interest current accounts, which offer a decent in-credit interest rate in exchange for your commitment and regular income. Aside from a minimum monthly funding amount, these accounts may require you to hold several direct debits on it, to make sure your account with them is your main banking product.

Credit interest

Competitive interest rates – some even inflation-beating – are available on high interest current accounts, but they may only be paid on the first part of the balance. After this, interest may not be paid at all, or at a very low rate, so you may want to maximise your returns by placing any money above this amount in a separate savings account.

Note that these accounts do tend to come with high overdraft rates, so you should only consider an account that offers credit interest if you’re not someone who regularly goes overdrawn.

Overdrafts

Overdrafts are basically a form of credit; they're a facility that allows you to overspend, so should be avoided if possible. There are two sorts of overdraft: arranged overdrafts, where the bank agrees an amount by which you can go overdrawn, and unarranged overdrafts, which occur when you either exceed your arranged overdraft or go overdrawn without having an arranged overdraft.

If you are likely to dip into the red on your bank account, you should consider an account that charges a low rate and/or fee for arranged overdrafts or allows you to go overdrawn by a certain amount (called a 'buffer zone') before you get charged. This can prove to be very valuable if your income and outgoings are nearly the same and your account balance goes near or below zero on a regular basis.

Moneyfacts tip

Moneyfacts tip Leanne Macardle

Make sure you understand the terms of any 'buffer' arrangement as sometimes it only covers interest or fees instead of both. Indeed, as they may not be automatically granted, you would do well to ask your bank about them.

While you should be aiming for only arranged overdrafts, you may also want to look at what rate you'll be charged on an unarranged overdraft should you go overdrawn unexpectedly, as these usually have higher rates or fees than arranged overdrafts. Overdraft fees and interest can vary greatly between banks, so it's well worth shopping around.

If you don't have an overdraft facility (which will be the case for basic bank accounts), it's doubly important to make sure you have enough money in the account to meet payments, as you may be charged a fee if a payment cannot be made.

For more detailed information on overdrafts, we’ve got a separate guide you may want to read.

Access to the account

Make sure you choose an account that you can access how you need. Some accounts are only accessible via internet and phone, while others allow you to deal with your account through branches and even the Post Office. This can be especially handy for paying in cheques or cash.

While most banks will now offer contactless as standard on their debit cards, this easy payment method may not be available with every account. So, if you want to be able to spend small amounts of money without having to put in your PIN number, you may want to ask your bank whether they allow contactless payments before committing.

Cash machines

Similarly, you’ll want to make sure that your account allows access from a wide range of cash machines and that these transactions are free. Just about all bank accounts give you a card so you can get money out of cash machines.

Most transactions will be free of charge, but if you use cash machines in places like petrol stations, amusement arcades or nightclubs, you may be charged. It's worth understanding what type of cash card you'll get, and whether it is widely accepted, e.g. at Link machines.

How do bank account providers make their money?

While providers use the funds in bank accounts to lend to others in the form of loans and overdrafts, gaining interest (and therefore money) in return, if a good rate of interest is offered on the account, they naturally make less money from it. That’s why these accounts tend to come with fees and/or high charges, such as for (unarranged) overdrafts or bounced cheques.

They also take a cut of each debit card payment made (called the interchange fee) and make money from fees and charges for things like overdrafts, refusing a payment due to a lack of funds in the account or using a debit card abroad, where they may charge a fee and make a profit on any currency exchange rate they offer.

Since some banking providers are more keen to gain custom than others, there can be huge differences in the benefits versus charges on offer across the market. That’s why it’s always a good idea to compare deals to find the best account for you – and to review your account occasionally.

As bank account providers change their deals quite often, usually without adjusting the deal their current customers are getting, it pays to keep a weather eye on the market.

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.

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At a glance

  • A current account is a convenient place to receive and spend money, with easy access through a debit card and online banking or your local branch.
  • Key factors to consider when choosing your current account are: fees, funding requirements, credit interest, overdraft charges and accessibility.
  • Make sure you’re still getting the best deal by reviewing your account features every once in a while.

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