Current accounts: A comprehensive guide

Most of us have a current account to manage our money. It's the account we pay income into and manage payments such as bills, direct debits and standing orders.

Different types of current account

To find the right current account for your needs you first need to know what types of account are on offer:

Standard current accounts

Standard current accounts generally have no fees and come with a cheque book and/or a debit card. A standard current account may also offer an overdraft facility, which you will generally have to pay interest on.

Some current accounts charge a monthly fee and in return may offer a better interest rate on credit balances and a preferential overdraft rate.

Premium current accounts

Many banks also offer premium current accounts, which charge a monthly fee and in return may offer a package of inclusive additional services such as travel insurance, breakdown cover or a discount on loans.

Student/graduate bank accounts

Student bank accounts are designed for people who are in, or who have completed, higher education. They generally come with an interest-free overdraft although the amount and the period of the overdraft will vary between providers.

Youth bank accounts

Youth bank accounts are specifically aimed at young people and are fairly basic in terms of what they offer.

Basic bank accounts

Basic bank accounts are similar to standard current accounts: customers can pay their wages or benefits into the bank account and access their money using a cashcard.

However, they do not offer customers a cheque book or overdraft facility and are generally aimed at those with a poor credit history.

What do I need to think about when choosing a current account?

Think about how you manage your money and what you want to be able to do with your current account:

• Are you usually in credit?  Look for a bank account that pays the most interest on a positive bank balance.

• Are you often overdrawn?  Find a current account that charges as little as possible on its overdrafts.

• Do you need 24/7 banking?  Consider a current account that you can access over the internet or via telephone banking, depending on your preferences.

• Do you like face-to-face banking?  Look for a current account offering a more traditional banking experience and one that has a branch close to you.

• Interested in extras?  Be prepared to pay a fee if you want free travel insurance, breakdown cover or other services included in the deal.

• Do you travel frequently?  Opt for a current account that offers free travel insurance, commission-free currency and so on. You might have to pay a monthly fee, but it could be worth it.

What do premium current accounts have to offer?

Some current account providers offer premium accounts. These are a type of current account that offer services such as free travel insurance, breakdown cover and discounts on loans.

But you have to pay a monthly fee for these extra benefits. So work out first whether you will actually use these benefits. If you don't, you'll be paying out money for a current account for no reason, when you could be banking for free.

Will I have to pay charges for using my current account?

The most common charge you may have to pay is for going overdrawn beyond any agreed limit (or facility). Your current account can charge you a penalty fee for this along with a higher rate of interest on the excess borrowing, plus a fee for any cheques, standing orders or Direct Debits that have bounced.

Other things your current account provider can charge you for include:

• Duplicate statements

• Bankers drafts

• Banker's references

• Status enquiries

• Access to money or services abroad (for example, using your debit card to withdraw cash)

How much interest will I get if my current account is in credit?

Different current accounts pay different rates of interest normally referred to as the AER or Annual Equivalent Rate. The higher the AER, the more interest you'll earn on your credit.

It's important to understand that current account interest rates are subject to change -the provider of your current account should notify you of any interest rate changes.

What will I gain by switching current account?

They say there is a greater chance of people divorcing than switching bank accounts. But with hundreds of current accounts now available, there's a good chance you'll find a more competitive current bank account with another provider.

Because interest rates on credit and interest charges on overdrafts vary considerably from provider to provider, comparing current bank accounts is the best way to ensure you get a great deal for your money.

Comparing current accounts can help you reduce the cost of an overdraft by helping you find an account with a lower rate of interest charged on your borrowing.

It can also help you find the best available rate of interest on your credit so you can earn more while your money is sitting in your bank account.

What's more, introductory offers sometimes include an interest-free overdraft for up to a year. And with some current and premium accounts, you may also be eligible for a preferential savings account from your new provider, which often features a great interest rate.

You'll be able to choose a bank account that's flexible enough to fit your lifestyle. For example, you might want to access your account with 24/7 telephone banking, use your computer to pay bills and/or get text alerts from your current account provider.

Glossary

Adverse credit This is the term used for people who have a poor credit rating or history. This may be because they have mortgage arrears or a County Court Judgment against them.

AER This stands for annual equivalent rate and tells you how much interest you will earn from your credited account over the course of one year.

Basic bank accounts Basic bank accounts are for people who have no credit history or an adverse credit history. They offer some of the facilities of a normal current account: you can pay wages or benefits into the bank account and access your money with a cashcard.

However, they do not offer usually offer a cheque book or overdraft facility.

Current accounts This is the most common bank account. Most have no fees. You only have to pay for your current account in the form of interest charges if you choose to use an overdraft.

It comes with a cheque book and a debit card and your provider can offer an overdraft.

Premium bank accounts Premium bank accounts are those that come with added extras such as free travel insurance, but charge a monthly fee in return for their extra benefits.

Student/graduate bank accounts A current account aimed at students and/or graduates. Such accounts normally come with an interest-free overdraft.

Youth bank accounts A current account aimed at children and/or young people.