Current account guides

Which current account?

How do you choose the best current account? We show you what to look for...(Updated 2/7/09)

In this guide we explore the different types of current account available and show you what to look out for when choosing the most suitable current account for your circumstances.

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• What types of current accounts are available?
• What should I be looking for when choosing a bank?
• Why switch accounts?
• How easy is it to switch current accounts?
• Our recommendations

What types of current accounts are available?

Crucial 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.

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!

Read our guide to high interest current accounts

3. Packaged accounts

• For: To tempt you, these accounts come with some additional perks, including worldwide multi-trip travel insurance and breakdown cover.
• Against: These advantages don’t come for free – expect a monthly fee between £10-15 for these accounts.

Read our guide to packaged current accounts

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 may be the only type of account available to you. Some come with cards, giving you the opportunity to make purchases in shops or online.
• Against: You will not have an overdraft, and most don't pay any interest on credit balances.

Find out more about basic bank accounts

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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 in-credit balance. The higher the better, although the more competitive rates have a fixed term of one year.

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. Account access - online versus branch

Do you mind not seeing someone face to face to gain the flexibility of banking anywhere, anytime?

4. Charges for use abroad

Whether you are a keen traveller, or just take one holiday abroad a year, you need to find out how much it will cost you to use your card abroad.

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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.

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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

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Our recommendations

Our top tips for choosing a current account are:

• 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.

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