What should you look for in a current account? It’s a good question with many different answers. There are literally endless current account options, each with their own distinct advantages, and often, disadvantages.
This feature aims to cover these big (and not so big) pros and cons to help you make the right decision for you.
Use the links below to move to that section.
A current account debit card means you can pay for goods and services by entering a four-digit pin code when you purchase an item or service. The money is then immediately debited from your account (unlike credit card that gives you several weeks before having to make a minimum re-payment).
A cheque book allows you to write a cheque to pay for goods or services. It’s a slower way of paying; it’s also fast becoming less common to use. But cheques are useful if you send money in the post. You can also post-date cheques so that money is only cashed after a certain period, helping you budget.
Don’t discount the usefulness of having a cheque book. And don’t forget to find out if a cheque guaranteed card is supplied with a cheque book (and what the limit is, £50 to £100 though some cards can have a guarantee limit of up to £250).
Wages, pensions and benefits can be paid directly into your bank account – and you can also pay, for example, council tax and phone bills by direct debit or standing order.
Direct debits are when organisations, such as your gas or electricity supplier, automatically takes a pre-agreed amount of money from your account on specific dates. But if the amount needs to change, it is up to them to contact you in advance and warn you.
Standing orders are similar to direct debits, except that you send a signed form to your bank, requesting that they pay, for example, the electricity bill on agreed dates.
You may have many reasons for wanting to transfer to a new current account. You may be annoyed that your bank has been inflexible over charges. Or it has just made too many mistakes. However, most people who switch accounts want a better rate of interest, especially when some providers are offering up to 8% interest (e.g. Lloyds TSB Monthly Saver account).
The pros, as mentioned, are potentially a better interest rate and maybe more convenience, especially if you’ve moved house or work and want a local branch near you. Some banks may offer a wider range of services and a higher overdraft limit. Or even a financial incentive to make the change.
You might think you could be putting your credit history at risk by starting afresh with a new bank, making it more difficult perhaps to gain a new credit card, for example, because of your short history with a new provider.
Data sharing between banks though is much more sophisticated than it used to be. Which means maintaining an unhappy relationship with a bank you don’t like is not an excuse not to switch.
Data companies like Experian, CallCredit and Equifax help banks to reach credit decisions. For example, they will know if you:
In other words, though being with a bank a long time can bolster your credit-worthiness, a move to a new provider shouldn’t harm your credit rating - or make it difficult for you to obtain future credit.
Tip:If you change: ask your new bank if they are willing to pay for any bank charges you incur should they make a mistake. Find out if they’re also offering cash sweeteners to encourage you to switch. Some do. For example, First Direct will give you £50 for switching.
Protecting your credit history
Lenders like stability. They take the risk when lending you money so they want to make sure you’re going to stick around. You can protect and reinforce your credit history by:
- Ensuring you don’t fall behind on existing credit card payments.
- Not owning too many credit cards. It doesn’t look good. Cancel any if you don’t use them regularly.
- Buying a property. Lenders, very simply, prefer to loan to home owners than tenants (it’s harder for home owners to up and leave).
- Getting yourself on the electoral roll.
Tip: Be careful when you apply for credit. If you apply to several providers in a short time, this will be flagged up – and your credit rating could be downgraded. Also check if a provider intends to carry out a full credit check when you apply, which will register against your name. A simple credit enquiry, on the other hand, should not.
It’s a good question. If the old account pays a poorer rate of interest for example, than why would you want to keep money in it? Banks also like to encourage you to switch wholesale when you move because you give them, quite simply, more money.
A bank may even offer to close your account for you when you move. However, a the previous bank may write to you after you have switched accounts and ask you to close the account. This may well happen if you were formerly with a provider which paid interest on your balance provided you were paying a certain amount of money in every month.
The Office of Fair Trading says it is perfectly legal to keep more than one current account running.
Tip: You might want to consider leaving your old account open for a while till things bed down with a new provider. For example, if the new bank does not transfer all your direct debits or standing orders as they should, you can still continue to pay these bills until the situation is fixed. And if you do close your account, remember to cut up all your old cards!
How to switch?
How long will it take to switch? Once your application has been approved, your new bank has 10 days to open your new account. Your previous bank also has just three days to transfer information such as direct debits and standing orders to your new provider. In this time they will also need to supply you with an ATM card, pin number and, possibly, a cheque book.
The companies who you’ve lodged standing orders with - like telephone line and electricity and gas suppliers - may take a lot longer to transfer your information.
What ID do I need to show?
Usually you need to provide two different forms of identity. Typically, one is a passport or ID card proving who you are; the other form of identification is a bill (perhaps two bills) that proves you buy basic services like gas or electricity from your existing address.
You may also be asked for details of your source of income and any details of existing credit card arrangements.
What happens if things go wrong?
Under the British Bankers' Association Code of Conduct your new bank is responsible for any costs such as bank or interest charges if there are any delays when transferring to your new account.
Contact your bank personally if you’re unhappy about their service. All UK banks have signed up to the Banking Code. Bank complaints, in fact, are rising: in 2005, complaints soared by almost 50% according to the Banking Code Standards Board.
When making a complaint
- If by phone, make a note of who you’ve spoken to and ask if there is a case reference number for your conversation.
- Write to your branch manager (but keep a copy of your letter) explaining what went wrong. Write ‘complaint’ at the top of your letter.
- Don’t get emotional or use any form of threatening language. Just give the facts and any names and dates you’ve kept a record of in order to back up your version of events.
- Keep copies of all correspondence sent.
If you still can’t resolve the situation, contact the Financial OmbudsmenThere is a lot of helpful information on this website about how to make your complaint.
You can also call them on 0845 080 1800. Calls will not cost more than 5p a minute.Or write. The Ombudsmen’s postal address is:Financial Ombudsman ServiceSouth Quay Plaza183 Marsh WallLondon E14 9SR
There is a huge range of accounts out there, each with their attractions. But think practically about your real day-to-day needs. It might be better to sacrifice a small amount of interest for the convenience of a local branch, for example. Below are some ideas about sorting your current account priorities:
- Interest rate. Is it a flashy one-off rate offer with a limited time period? Or will it rise or fall with Bank of England interest rates? For example, Abbey will pay you 6% for the first year if you pay in over £1,000 a month, but only for the first year.
- What about an off-set account? This means you balance what you owe in total - for example, a mortgage - against your savings, potentially helping you pay your mortgage off early. You also save tax this way, because no interest is paid on your savings, that means there’s also no tax liability at the end of the year. Nifty.
- Or a combined savings and current account? Good for higher rates of interest, for example, the Coventry's First account.
- An account paying interest on cheques the day they’re banked (Lloyds TSB current account customers don’t have to wait three days for a cheque to clear).
Current account overdrafts are a simple way of borrowing money for short periods without the hassle of a personal loan. How much overdraft your bank gives you depends on how much money you regularly have flowing into your account, and what your credit history is like.
Although agreed overdraft interest rates can be fairly modest – currently at time of writing, June 2006, they’re around 7.5% - such rates can easily triple or quadruple if you spend beyond your overdraft limit (and some banks may apply this much higher charge to the whole of your overdrawn balance!). So be careful not to exceed your limit.
Tip: Check also whether your bank will charge you for setting up an overdraft; not all will.
The big change recently has been internet banking allowing you to keep tabs on all your finances 24 hours a day. Interest through internet accounts can also be higher because internet banking is cheaper to run than bricks and mortar branches. Typically internet banking lets you:
- Pay bills.
- Set up standing orders and direct debits.
- Check statements.
- Apply for loans and mortgages.
It is also generally a safe way of handling your money too. Worries about security often focus around ‘phishing’, where hackers send emails to people to try and get them to give their password and other details. However, no bank would ever contact their customers by email for this confirmation.
Hidden and not so hidden charges
Overdraft and credit card charges have risen by up to 40% in the last two years. Typically charges can be slapped on for exceeding an authorised overdraft or a bounced cheque or direct debit.
Some banks may apply a one-off initial charge of, say £30. Others will continue to charge you £30 per month, plus another fee if your overdraft rises again. If you think you’re at risk from going over your authorised limit check their charges before you commit.
Lloyds TSB, HSBC, HBOS and Barclays recently reduced their late payment fees on credit cards from £20 to £12, due to pressure from the Office of Fair Trading. However, these banks have not applied this cut to reducing overdraft penalties, which commonly can be as high as £30.
Currently there is pressure on the banks from consumer organisations to give 14 days’ notice of charges, allowing consumers time to put their affairs in order. But there has been no change on this yet.
Banks don’t yet charge customers for using the nationwide Automatic Teller Machines (ATM) network, though this could change in the future.
Be careful: ATMs sprouting up on petrol station forecourts, inside small shops and some railway stations can charge up to £1.50 for every withdrawal – a massive amount if, for example, you only take out £10.
How to challenge charges
You can challenge banks by writing to them promptly. For example, if you mistakenly overdraw, even by a very small amount, you can still be charged an average £30 overdraft fee. Write to your bank explaining the mishap and stressing your existing good credit record. They may well give you the benefit of the doubt if it only happens once or occasionally. If they don’t, you can threaten to take your custom elsewhere.
Other charges - using money abroad
Take care when you’re abroad. Currently Nationwide is the only large bank that does not charge a handling fee (commonly called an exchange rate administration fee) if you use your debit card overseas. Typically such charges can grab up to 2.75% - or £2.75 for every £100 cashed in local currency – of the withdrawal value.
No frills, basic bank accounts are usually designed for those who don’t want to risk becoming overdrawn. They are an excellent choice for anyone who wants to keep banking costs to an absolute minimum.
Typically they will:
- Allow a salary or pension to be paid in.
- Let you pay personal cheques in.
- Withdraw cash using a cash card from an ATM or the Post Office (in some cases).
- Set up, in some cases, direct debits.
- Help you start building a credit history.
The big advantage for these sorts of accounts is that you can’t overdraw – ever. You can start most bank accounts with just a £1 deposit. Statements are sent usually every three months. The minimum age for opening one is 16, so they’re an excellent choice for older teenagers.
There are some great headline rates out there. But some headline rates may demand that you open other accounts with that bank, for example a current account that runs alongside a savings account.
To get the very best rate, you also may have to also:
- Lock up your money for a considerable period of time.
- Stick to regular payments in advance.
- Lose flexibility if your circumstances change.
If you are willing to put up with some inflexibility, accounts like Alliance & Leicester's 10% Premier Regular Saver, Barclays Regular Saver saver (10%) and Lloyds TSB’s Monthly Saver (8%) could be worth a look. These demand regular payments of between £10 and £250 each month for the first year – and you can’t make any other deposits or withdrawals. These are the best current accounts for interest.
Free MP3 player, discounted coach and rail cards, even cash in your account when you open. Students don’t have much money generally. But banks throw terrific current account offers their way in the hope they’ll stick with them when they’ve left college when they’re earning decent money.
However, most students will find the biggest benefit over time is an interest-free overdraft. Yes, it’s a rather conventional offer, but over time a low overdraft should save students a lot of money in bank fees. Some accounts may even offer a good interest rate on the current account. Most students, though, are likely to be in debit more often than they’re in credit.
Looking beyond the usual bank freebies, students should also look for:
- Low fees should you exceed your overdraft.
- Good bank and ATM access close to their accommodation.
- A reasonable rate of interest when they are in credit.
Tip:Look out too for ‘buffer zones’ beyond an overdraft, that have no or low charges if you do exceed your limit. Some banks offer them, other’s don’t. Bear in mind that when you finish university, banks might well be happy to continue the interest-free arrangement if you threaten to leave.
Online fraud is big business. So it’s hugely important that if you bank online, you do so safely. If you regularly use email you will have probably received ‘phishing’ emails that attempt to get you to divulge bank information. As noted, no bank would ever ask customers to do this via the web. So beware – and never click on their web-links!
Help yourself to be safe
- Never respond to emails asking for banking details.
- Keep your online customer number and password safe; it’s also a good idea to change them fairly regularly (though not so often that you forget what they are!).
- Fit security software on to your computer – and ask your bank if they offer any technical support to help you combat online fraud. Some give away free anti-virus software.
- Some banks are getting very active on the fraud front. For example, Cahoot’s webcard will disguise your number details when you shop online – you never use the same number twice.
Don’t forget to take common sense measures such as making sure all your post is re-directed when you move.
Tip: Sales of electronic paper shredders have soared since online banking took off. A good one will cost £30 plus, but make sure you go for one that has cross-cut teeth which cuts paper vertically and horizontally into tiny pieces. They’re more secure than the cheaper strip-cut variety.
Owning a second home abroad is becoming much more common as is working abroad for short periods. Many people therefore need to move money abroad quickly and cheaply with minimum hassle.
The cheapest way to do this is via internet banking, which should save you money on international money transfer fees. Many banks’ will also be able to handle international exchange rates via internet banking too. If this is important to you when choosing a current account, check that this option is available.
Be aware of:
- The sending or receiving bank attempting to impose charges with any transfers. Your bank will usually charge you for transferring money – see table below – but the receiving bank may also charge too. So check both ends.
- Highly variable exchange rate charges from different providers – they can vary widely who is best
- Pre-paying for any currency for sending on later, particularly if large amounts are involved.
- Fees when ordering local currency online. Some charge handling or commission fees like Lloyds TSB and Egg, though First Direct, Barclays and Natwest don’t.
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|Name of Bank
||Charges for transferring money to a bank in Europe|
|Royal Bank of Scotland
|Smile (Co-op Bank)
The first step is to put your complaint in writing to your bank. Stick to the facts; don’t get emotional. Almost all banks and building societies stick to a set of service standards laid out by the Banking Code.
- Find out about the company’s own complaints procedure.
- Keep a log of what is said and when.
- Make sure you enclose any other relevant documents relevant to your complaint.
- Make sure your correspondence is to the point.
- Keep polite!
If you find you are still dissatisfied with any outcome, you can contact the Financial Ombudsmen’s Service. Their website has details about how to take your complaint further.
You can also find out information about The Banking Code from the British Bankers' Association’s website. Its aim is to set out clear customer standards by which banks should abide by.
So, we hope this guide has been helpful. Do remember that flexibility and ease of use is one of the most important priorities when choosing a bank. Attractive up-front offers can look great, but your relationship with your bank is likely to be a long-term one. Choose wisely!
For example, First Direct will give you £50 for switching.