Money > Guides

How to choose a current account – 7 key questions to consider

Robin Bowman

Robin Bowman
Jan 31, 2017

There has never been so much choice in the current account market.

So, choosing the right one for your needs is not straightforward.

In this guide we run through what you might consider.

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What will you use your account for?

Generally, a current account is used for everyday activities, payments in and payments out.

Money is readily accessible and so are details of the account.

Everyday banking activities include paying standing orders and direct debits, receiving wages or other regular income, paying for items using a debit card and withdrawing money from ATM machines.

They often give you access to an overdraft as well, but this is not a great way to borrow money and it certainly needs to be authorised by the bank. Accounts can also be used for paying in and writing cheques, although this is in decline.

So far, so good.

What you won’t normally get is anything much in the way of interest on your money, although some banks do offer a small amount, especially if you keep your balance above a minimum and have a certain amount of money coming in every month.

 

Do you need a ‘Packaged Account’?

These are increasingly popular and we’ve written a separate guide on them here (link here).

They offer certain perks alongside the regular bank account. These include services like travel insurance and road breakdown cover, along with a variety of other services. And for this you pay a monthly fee.

They’re certainly not suitable for everyone and they all offer different perks, so choosing one of these involves adding up the cost of the services you actually need and comparing it with the yearly charge for these accounts.

The key is also to think about which of these services you actually need or would use.

 

Is a ‘Fee-free’ account right for you?

At the other end of the spectrum, these are accounts that do pretty much what an ordinary account does, but there will be no overdraft facility. 

They are aimed at people who have a poor credit history or who are on low salaries. They’re basically a no-frills version of a normal current account.

 

What about a ‘jam jar’ account?

These are billed as an alternative to the traditional approach of putting money in a jam jar to pay for different things.

Otherwise known as ‘transactional accounts’, they are aimed at people who want help budgeting.

For all this to work, you need to have a good picture of your income and outgoings and where it’s all going every month. Then, after you’ve worked out what you have to pay, you work out what you you like to have, your wants.

This might be useful for people who really need help budgeting, but you’ll have to pay a monthly fee for the privilege.

 

If you’re a student – what are the incentives really worth?

Banks like students. They like them because they know that once most people are with a bank, they will rarely switch to another. They should, of course, because it’s easy and can save money and lead to other benefits. But the fact is, the majority of us still don’t.

So, banks will often do what they can to attract students to open an account with them. One of the attractions is often a free overdraft (up to a maximum amount, obviously).

Our advice is to look carefully at the benefits and try and differentiate between flashy short-term giveaways and ones that might really prove useful. But also bear in mind that you can switch bank in the future.

 

What should you actually compare when choosing a particular bank or building society?

There are two things, essentially. The charges and the benefits.

Charges

All banks will whack you hard in charges if you ‘borrow’ from them without getting clearance first. Having an overdraft facility, even an agreed one, can be costly.

So, looking at charges levied by a bank is good place to start – unless, of course, you never go overdrawn and are confident you won’t in the future.

But check out all fees, not just for an overdraft.

Benefits

The most eye-catching benefits are going to be the ones you measure in pounds and pence, of course. So, up top is probably interest on your balance. How much is it?

These vary between bank and go up and down as all interest rates do. But these days, the rate is not going to be especially exciting and it will be on a limited amount of money. But you’ll need to do the calculations to see the differences between accounts.

Other banks might appeal because of other, non-monetary benefits.

Other, non-cash benefits, to think about

For example, you might prefer a bank with a convenient branch near you with a full range of over-the-counter facilities.

Or, if you prefer doing your banking online and on the phone, you may prefer a bank you know you can get through to and speak to a real person without have to go through an annoying multi-choice menu first.

Some banks are making this a priority – First Direct, for example, now uses sophisticated voice recognition software to make accessing your account on the phone super-quick.

Introductory offers

Grabbing new customers is what makes any business grow and banks are no different.

Many will now offer you attractive incentives to join them – cash, or a free overdraft or cash-back when you pay bills through them.

These are worth considering, but make sure you check the small print and the old saying holds true: ‘there’s no such thing as a free lunch.’

 

Is it actually worth switching bank account?

On average, the answer is ‘yes’.

Research by the Competition and Markets Authority has found previously that consumers could save on average £92 a year by moving to a better deal more in line with their requirements.

Last year just over one million people took the opportunity to search out a better deal on a current account. But that number is actually down on the previous year, by 23,500.

This is almost certainly because it’s always easier to do nothing.

But switching is now extremely easy, and quick. It takes only seven working days to move your account and that means with everything – direct debits, the lot – set up with your new account automatically.

It’s certainly worth having a review of your bank every so often and asking yourself: ‘what else is out there in the market and am I getting the best deal that’s right for me?’

Do a comparison and find out!

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