Choosing the Best Current Account

It is perhaps the one financial instrument that we use the most and think about the least: the ‘humble’ current account. Just about every adult in the UK has one and very few of them will ever switch from the one that they have been using for years. This is quite a sad state of affairs since it is quite likely that the account in question (i.e. the one that you’ve had since you started working!) has horrendous overdraft charges and pays very little interest.

It does not have to be like this however. The UK market is flushed with innovative banking products offering exciting features and incentives that could be of real benefit to you. It is also much easier to change accounts than you might think.

So what should you look for in a current account? The answer is that it would be best to find the one account that would fulfil your individual needs the best. There is no ‘one size fits all’ solution when it comes to choosing a bank account. Part of finding the best ‘fit’ would be to determine the usage patterns on your current account. The big question that you will have to answer is how much of the month, if any, you are overdrawn.

If your bank account is always in the black it would perhaps be best to change to a high interest account.

Finding a high interest account (This obviously refers to ‘high’ when compared to other current accounts) is much easier than it used to be as the intense competition in the current account market is forcing banks to offer better rates of interest. Before choosing a specific high interest account it is worth looking at what exactly is meant by ‘high interest’ and if it applies to all the funds in the account or not. In some cases the amount that attracts higher interest is capped at a certain level, while other banks will only pay higher levels of interest if you deposit a certain minimum amount in the account every month. It is possible to get around these issues (e.g. by transferring funds above the cap into a savings account and by making sure that you salary is paid into your current account) but it would perhaps be better to find an account where you are not faced with the hassle of having to do so.

If you make regular use of your overdraft you should perhaps aim for an account that is flexible and relatively cheap when it comes to charges and interest payments. Some accounts offer interest free overdrafts and can therefore be a very good option. You should be aware however that the charges and fees to make use of the overdraft can often be very high, cancelling out any potential interest saving. Another option would be look for a fee-free low interest overdraft. Here you will have to pay interest but at least you will know exactly where you stand and how much you are paying (as opposed to accounts levying daily charges, which can be very confusing)

One last thing to consider before making a final decision about an account is the kinds of incentives and optional extras that you would like included with your account. Do you want an account that could earn you loyalty points? Does your bank have to have a ‘bricks and mortar’ presence or are you satisfied with an online only service? Do you need a cheque book? Answering these kinds of questions will help you a great deal in making your final decision.

Once you have made your decisions about where you want to switch to the process should be fairly straightforward and painless and you can expect that your new bank will do as much as possible to assist with a smooth transition.

Summary:

• Most people stick with one bank account for a long time. This is not a wise financial decision since there is usually a lot to be gained by switching accounts.
• If your account is mostly in the black it would be wise to make sure that you select a high interest account.
• If your account is sometimes overdrawn the choice will normally be between accounts that charge no interest but that does levy fees and charges and account that do not normally have fees but that do charge interest.
• It is much easier to switch accounts than most people realise.