Everything you need to know about current accounts
Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
25th October 2021
6 minute read
Whilst you might already have a current account, you might be surprised to find out more information about owning one and how getting the right current account can benefit your finances.
The Guru is a fond believer in sharing wisdom, love and everything else in between. If anything, he’s a bit of an over-sharer. Whilst this can lead to some uncomfortable social situations, it does mean that people can find out everything they need to know about their bank accounts.
Read on to find out everything you need to know about current accounts, and also what the Guru had for breakfast this morning.
Can I get a current account?
Getting a current account is an incredibly useful step towards managing your finances better and ensuring you aren’t spending too much on a monthly basis.
Your eligibility for getting a current account is usually based on your credit rating, and whether or not you’re seen as trustworthy to major account providers such as banks and building societies.
However, even if you have bad credit, there are usually options available to you if you still wanted to open a current account. Basic current accounts are a simplified version of a standard current account, designed for those who need to avoid accumulating any further debt.
What can I use a current account for?
Current accounts have a multitude of uses, all relating to the effective management of your money. They also give the owner access to additional accounts with the account provider they’ve chosen.
Uses for a current account include:
- Depositing your income – most working adults will require a current account simply as a secure place for their employer to deposit a monthly income. This is the safest and easiest way to be paid and also allows HMRC to monitor tax contributions
- Making purchases using a debit card – depending on the balance of your account, you will be able to make purchases using a debit card supplied with a current account. This can either be done using the card in person or by entering the card details online
- Transferring money to others – you can make a bank transfer to another account as long as you have the details of the recipient’s account
- Pay your bills – direct debits can be set up for various bills you need to pay on a monthly basis, including water, electricity, a mobile phone contract or car finance
- Withdrawing cash – using an ATM cash machine you can withdraw money whenever it is convenient, though some machines still charge a fee to use them
Key features of a current account
The current account you decide on is not just a place to keep your money. It also comes with many other features that will appeal to you depending on how you prefer to spend your money.
The following features are usually included with a standard current account:
- Debit card or cash card – a physical card you can use to make purchases in person or online
- Cheque book – allowing you to write cheques if you want to pay money to an individual or business, though it is still much easier to pay by card
- Online banking – access your banking balance from anywhere either using an internet browser or via an associated app
- Direct Debits – if you have a monthly recurring payment such as a utility bill or payment on a mobile phone contract, a direct debit will help you set this payment up automatically
- Standing Orders – you can also choose to set up your own standing orders, which are usually a personal transfer between accounts
- Bank Transfers – you can make a bank transfer to another individual or business as a one-off payment
- Earning interest – if your current account comes with an interest rate, you will earn money on any funds that are held within the account on a monthly basis
- Cashback – you can earn cashback on purchases or from specific retailers through your current account, usually as part of a limited-time offer
What types of current account are available?
Whilst all current accounts fulfil the same need, there are subtle differences in between types of current account that will make certain ones better suited to your requirements. However, the more perks you receive with an account, the more likely you will need a good credit rating to be accepted.
Check out your current account options below:
- Standard current accounts – these types of accounts come with all the facilities mentioned above, with restrictions dictated by your account provider
- Packaged current accounts – these accounts come packaged with a number of perks such as car breakdown cover and mobile phone insurance. Some packaged accounts also charge a monthly fee to use the perks
- High interest current accounts – if you would like to earn interest on top of your balance, a high-interest current account often has better rates than a savings account
- Basic current accounts – these are restricted versions of standard current accounts and are normally for people who require a bank account for bad credit. The limitations stop the account holder from easily accumulating any more debt
- Under 18 current accounts – specifically designed for young people aged between 11-18, though 17 year-olds and above will often have access to more facilities such as a debit card and cheque book
- Student account – for those in full-time education at university, often packaged with a number of perks including an interest-free overdraft
- Bad credit current account – if you have bad credit and still want to open a bank account, there are plenty of bad credit current accounts on offer, including basic current accounts mentioned above
Hint and tips when using a current account
Unfortunately, a current account won’t manage itself. This means that you’ll need to do a bit of tinkering on a monthly basis to make sure you aren’t spending more than you have in your account. The following hints and tips will assist you in using your current account without being penalised:
- Don’t spend more than your account balance – this sounds obvious, but it can be so easy to do, especially when you have multiple direct debits and standing orders coming out on different dates during the month. Try to add up your monthly outgoings and make sure you have enough every month to cover the payments. If not, you need to start reducing how much you spend each month
- Keep track of your outgoing payments – instead of struggling with payments coming out throughout the month, try to stack your payments as closely after your pay check as possible, to stop you from spending too much
- Use an overdraft as a buffer, not all the time – an overdraft is great to stop you incurring additional fees if you have an expensive month, but shouldn’t be used permanently. If you find yourself creeping into your overdraft more and more, you know it’s time to cut back
- Only take a packaged account if you will use all the perks – packaged accounts are great for combining lots of small benefits will still charge you a monthly fee for using it as standard. If you aren’t making use of all the benefits, it’s time to switch current accounts
Avoid current account penalty fees
Lastly, try and be aware of all the penalty fees associated with your current account, as this will help you avoid them in the future. It will also mean if you are penalised that it isn’t too much of a shock. You might encounter the following penalty fees:
- Transaction fees (spending without an arranged overdraft) – if your account goes below £0 and you don’t have an overdraft, you will either be charged a penalty fee for the transaction that took you over your limit or charged a daily fee for being within an unarranged overdraft
- Overdraft fees – if you have an overdraft facility, you will usually be charged a small daily fee for using it (depending on your account provider), unless it is interest-free (such as a student account)
- Failed direct debits or standing orders – if a direct debit or standing order fails because you don’t have enough in your account, a penalty fee is usually added
- Cash withdrawal fees (from an ATM) – whilst most ATM machines are free, there are some that will charge you for withdrawing cash
- Foreign Transaction fees – you can also be charged for using your card abroad when making purchases. To avoid hidden fees, try spending on a travel credit card instead
Still unsure what current account to choose from? Browse through our current account tables to find out which one would be right for you.
Oh, and if you were still wondering, the Guru had a bowl of wisdom for breakfast, followed by a soft-boiled egg filled with gooey, yokey knowledge. It’s the only thing that’ll keep him going throughout the day.