Which bank account is for me?
With a variety of different types of bank account on offer it can be hard to know which one will best fit your needs and circumstances. This guide outlines all the different types of bank accounts available to so choose wisely and find the right account for you.
Designed to hold the money you spend on a regular basis on living costs and bills, it will provide you with a debit card, cheque book, direct debit and standing order facilities. You can also benefit from telephone, internet and in-branch banking options. You can credit the account by regular income such as wages or pensions, by transferring from another account, or by paying in cash. Some current accounts offer cheque books, and many offer overdraft facilities, which you can use to borrow a small amount in the short term as long as your credit file allows.
Basic bank account
One in 8 million people in the UK cannot get a bank account, which is why a basic bank account could be the answer. Designed for people with low credit scores, it offers basic banking facilities, such as debit card, direct debit and standing orders, and sometimes a chequebook. You won’t get an overdraft with a basic bank account and although these accounts have been free of all charges since 2016, you’ll also be offered a very low-interest rate on any money in your account. You may find that you’re also restricted to online or telephone banking. Banks tend not to shout about these accounts as they don’t make any money on them through interest or bank charges, but they are out there and can be a great solution for someone with a blemished credit report who would otherwise struggle to open an account.
Packaged bank accounts
These are usually a normal current account with add-on perkssuch as breakdown cover, travel insurance, mobile phone insurance, retail discounts at shops and restaurants and can offer savings that run into the hundreds. It sounds appealing, particularly when it’s grouped together in one big package of discounts, but it’s only great value if you actually use the perks on offer as you’ll pay a monthly fee. It’s also worth checking that the sums add up and that you can’t get the individual policies cheaper elsewhere. Remember to check the small print on services as claims and cover can often be limited.
Overdraft current accounts
Many current accounts will offer an overdraft facility that you can use in the short term to cover extra expenses. How much you can be offered, and the interest rate, will depend on your credit rating and going over your overdraft limit will incur bank charges. Overdraft facilities will often stay on your account permanently, but you can ask to have them removed or change the borrowing amount by applying to your bank. Overdraft facilities are usually charged fees, either by monthly maintenance charge, interest on the amount borrowed or a one-off daily fee, so whilst they work in the short term they shouldn’t be used as a long term solution.
High interest current account
The majority of current accounts offer low interest rates, however there are a few that offer rates that can be higher than an open access saving account. Watch out for shifts in interest, high interest rates can be used to entice customers in, but will then expire after a certain amount of time. Alternatively, the interest can increase depending on how much money you have saved with them. Overall, a high interest current account works for those who have to keep large amounts of money in their current account for huge bills and expenses. It’s worth bearing in mind that your money shouldn’t be kept there long term, as there are usually open access savings accounts that offer better returns.
Managed current accounts
Also known as ‘two tier’ or ‘dual accounts’, a managed current account is designed to simplify your banking by helping you avoid unauthorised overdrafts and bank charges. By automatically separating the money you need to cover bills from your salary or other monthly income source, this specialist account will ensure you can only spend the money you have left over. Designed for account holders who have struggled with money maintenance in the past, these can be a smart way of getting a handle on your monthly finances. However, they can come with monthly servicing fees so it’s always worth working out the cost implications of this before applying.
Mortgage offset current accounts
Another specialist bank account, this type enables you to use any capital in your current account to reduce the amount of interest paid on your mortgage. For example, if your mortgage debt is £150,000 and you have a £20,000 credit balance in your mortgage offset current account, you will only pay interest on £130,000. This enables you to maximise the benefit of your capital – you get flexible access to your cash but it works to reduce your debt.
Student or graduate current account
A student current account is a standard offering that comes with additional benefits such as discounts, rail cards, money management facilities and cheap, or interest-free, overdrafts, that are all designed to help those in further education manage their finances. At the end of their time in education, this account will automatically become a graduate account. There isn’t much difference in what’s offered, although the overdraft limit will probably shrink over the course of a couple of years, to help the borrower reduce it over time. Should the overdraft not reduce, the higher interest rates will also kick in.
Business current account
Designed for people who run their own business, this type of current account offers all the usual benefits of a personal account, such as debit cards, cheque books, automated payments and overdraft facilities. These often include higher overdraft facilities, foreign exchange rate discounts, fast international payments and insurance, access to business guides, meeting rooms and business class travel facilities. You are not legally obliged to hold a business account but you will need to keep your business finances separate to your personal ones. Basic business accounts tend to be free but more complex accounts will often charge a flat monthly fee, pay-per-transaction fee or both. Anyone can apply for a business bank account, regardless of their company size, although your credit rating will be applicable.
Community & green current accounts
You can go environmentally friendly with some bank accounts, opting for paper-free banking and investment in sustainable businesses, with some bank accounts committing to investing in community projects. These bank accounts are offered by high street banks and building societies as well as co-operatives and credit unions.
Islamic current accounts
These accounts meet the needs of the Muslim community. Sharia law does not allow the paying or receiving of interest, so Islamic banks invest money in ventures that comply ethically, and rather than paying a specified amount, will gift a proportion of the profit at discretionary times.
Children’s current accounts
Children’s current accounts offer much the same as those of adults. You can deposit money and you’ll be given a debit card to use in an ATM. The main difference is that children’s current accounts will not offer overdrafts, so there will be no borrowing and no fees or interest charges. Children can open savings accounts from the age of 7, but most banks will only offer current accounts to children between the ages of 11 to 18. If your child is under 16 you will need to open the bank account on their behalf.