| |
Which current account?
|
Which Current Account
Compare current accounts >>
When it comes to choosing current accounts, it’s a confusing market. With AER, EAR and other potentially confusing acronyms flying around, you’d be forgiven for getting lost in the current accounts quagmire.
Fortunately, help is at hand with our comprehensive guide to current accounts and the potential benefits of switching to a new provider.
What are the different current accounts on the market?
Core to making the right decision is to understand the variety of options available to you. These are mostly broken down into five types of current account:
1.Standard high-street 0.1% account
- For: Pain free and usually devoid of the complicating stipulations attached to the other accounts. Bland but reliable, and of course no monthly fees are required.
- Against: You simply aren’t maximising your earning potential. If you are a reliable customer, you could earn much more interest with other accounts.
Read our guide to which current account
2. High interest accounts
- For: An easy way of earning money for nothing.
- Against: Typically, this rate lasts for one year before plummeting back down to your standard rate. Certainly good while it lasts!
3. Premium accounts
- For: To tempt you, these accounts come with some additional perks, including worldwide multi-trip travel insurance and a free flight voucher (with Barclay’s Additions Plus).
- Against: These advantages don’t come for free – expect a monthly fee between £10-15 for these accounts. First Direct won’t charge you their monthly fee of £10 if you pay in £1,500 each month, but this means you must earn the equivalent to approximately £24,000 p/a before tax to bank with them.
Read our guide to premium packaged current account
4. Online only accounts
- For: Attractive rates for cutting out the proverbial middle man. Some banks such as First Direct operate exclusively on this basis, and importantly you can bank 24 hours a day, 7 days a week.
- Against: A lack of face-to-face contact time, plus the potential problems that come from an age of identity fraud.
Read our guide to online current accounts
5. Accounts for adverse credit
- For: If you have a bad credit rating, this is an opportunity to use a card to make purchases in shops or online.
- Against: You will not have an overdraft, and cards require authorisation for every transaction, meaning that you could find some retailers are not prepared to accept them.
The first question you should ask yourself is whether you need an overdraft limit or if you’re willing to forsake this for higher interest rates. If you normally remain in the black, you can take advantage of some high interest accounts, such as the 8.5% AER Premier Direct account offered by Alliance & Leicester – much more rewarding than the paltry amount you’d get from your typical 0.1% current account.
Find out more about basic bank accounts
Back to the top
What should I be looking for when choosing a bank?
There are several important factors to consider when weighing up which current account suits you best.
1. AER (Annual Equivalent Rate)
This represents the percentage annual return on your savings deposits. The higher the better, although the more competitive rates have a fixed term of one year in most cases.
2. EAR (Effective Annual Rate)
This is the amount of loan interest charged each year by your bank for going over your overdraft. Increasingly, banks are offering 0% for the first 12 months to attract new customers.
3.Interest on in-credit balances
Be rewarded for being a disciplined saver.
4. Account access, online versus branch
Do you mind not seeing someone face to face to gain the flexibility of banking anywhere, anytime?
5. Charges for use abroad
Most banks will typically charge 2.75% of the expenditure when you use a card overseas. Some even go a step further. If you use a Lloyds TSB debit card you will be charged a 2.99% foreign exchange fee, with purchases and withdrawals charged an extra 1.5% of the amount. And that’s not counting the £1 charge applied to all transactions generally. It all adds up and can be an unexpected additional expenditure on your holiday.
Why switch accounts?
To take advantage of the benefits of being a new customer. Many banks offer compelling AER and EAR for the first 12 months, with some of the more attractive extras only being available to newcomers. Effectively, there’s little reward for remaining loyal.
Back to the top
How easy is it to switch current accounts?
It can seem like too much hassle to switch banks. It’s not. Switching accounts has never been easier, with the majority of banks getting in touch with your old one to carry over standing orders and direct debits. Switching is now simple, pain free and definitely worth considering if you aren’t already maximising your earning potential.
Read our full guide to switching your current account
Back to the top
In summary
- Know what you need: if you require an overdraft, don’t aim for accounts with high interest rates.
- Online account management allows you to bank anytime you want from anywhere in the world, but you may miss the contact time you get from visiting a branch.
- Accounts for adverse credit are a good place to start if you’re rejected from conventional accounts.
- Premium accounts only offer good value for money if you believe you’ll take advantage of their benefits. Otherwise, it’s just a waste of your cash.
- Switching accounts is nothing to be afraid of. They are easier to do than ever, and can generate some genuine profits.
Back to the top
Our recommendations
The HSBC Bank Account Plus offers 8% AER, which is attractive but only applies to the first £1,000 in the account, and for balances between £1,000 to £2,500 the rate plummets to 2.5%. It’s worth noting that these high interest rates are only available for the first 12 months.
However, the 8.5% AER Premier Direct account offered by Alliance & Leicester goes a step further. The higher 8.5% interest rate applies to the first £2,500 and drops to 4.5% after a year – better than HSBC’s offer. Importantly, it’s free to use as long as you pay in £500 a month, saving you the £155.40 a year you’d be charged to bank with HSBC at £12.95 a month.
Assuming you’re usually in the black and you’re looking to be rewarded for diligent saving, you should really head straight for one of these high interest accounts.
Compare current accounts, or read our guide to switching your current account
Back to the top
| 
