Current account basics
We run through the most common questions about current accounts covering everything from what they are and how they work, to how to open an account and how to manage them.
What is a current account?
A current account is an 'everyday' bank account. It is suited to being used as a holding account into which your regular instalments of money are paid, and from which you pay for your bills and everyday items. A current account is not usually suited to being used for savings.
What do current accounts offer?
Current accounts offer a wide range of banking services. Standard features include:
- The issuing of a debit card for drawing out money from cash machines and for paying for things in shops
- The ability to set up regular payments through direct debits and standing orders
- The ability to transfer money ad hoc to your own and others' accounts, both at home and abroad.
- The option to order foreign exchange and travellers' cheques, sometimes at preferential rates
- Monthly statements (you can choose to go paper-free and see your statements online)
- Overdrafts - allowing you to take your account into a negative balance and to service that debt on a relatively casual basis, compared with a loan - are commonly offered. However, this is dependent on credit history and the type of account.
You can usually request a cheque book to use with your current account, but you won't usually be issued one as standard. The use of cheques has been widely deprecated.
What types of current account are there?
As well as 'standard' current accounts, there are many accounts that cater specifically to certain types of people and needs. The main types of current account commonly available include:
For a detailed look at the different types of current account available, see Know Your Money's dedicated guide.
- Premium: providing higher interest rates or other rewards, usually offered to those with large monthly incomes and preferential credit histories
- Basic: providing a narrow range of core services, usually offered to young people or those with low credit profiles
- Packaged: offering a range of non-banking services and benefits, on top of the usual current account features, in return for a monthly fee
- Student: offering cheaper and larger overdrafts to students, as well as additional non-banking benefits
- Graduate: offering extended periods of overdraft benefits after a student graduates
- Business:Providing a range of additional facilities which can include payroll assistance, change services, business advice and larger overdrafts to small businesses
- Mortgage offset: Enabling mortgage holders to reduce their interest payments on their home loan by balancing their debt against money held in their current account
- Islamic: restricting interest payments and the way the money in the account is invested by the bank, in line with Sharia law
Who offers current accounts?
Current accounts are offered by high street banks and building societies as well as specialist providers such as online-only banks, credit unions and the Post Office. Some smaller companies specialise in providing current accounts for people with poor credit histories who are only offered limited services through traditional routes.
Current accounts can also be held with banks that cater to specific religions, as well as with national banks from other countries that are present in the UK market.
How do I choose a current account?
Things to compare when choosing a current account include:
- The interest rates on credit and debit balances
- The charges that you'd have to pay if you use an unauthorised overdraft
- Any standard operating charges
- Rewards for paying in a certain amount of money each month or cashback on your debit card purchases
- Joining bonuses when you switch your account from another bank
- The way you can access your account, including the online and mobile banking availability and functionality, as well as proximity to branches
- Philanthropic commitments from the provider, such as green banking
- Peer reviews of customer service
You can compare leading current accounts from mainstream and niche providers with Know Your Money's comparison tables.
How do I access my current account?
You can usually access your account online, through mobile apps, in branch and over the telephone. Some account types may have limitations to in-branch counter services, although automated machines are usually provided as an alternative.
Can I have a joint current account?
You can apply for a current account jointly with one or more people, including people that you are not related to. Be aware that when you hold a current account with another person your financial profile, which is held by the major credit referencing agencies, will be linked to that person. That means if the other person has financial difficulties in the future your credit profile may suffer as well as theirs.
Will I be offered an overdraft?
Whether or not you will be able to access an overdraft facility with your current account - and how much you'll be able to borrow - will be dependent on your credit profile, previous financial history and, ultimately, the banks' discretion. Be warned that banks sometimes offer overdrafts for a limited time and can remove the facility when that term ends. If you are within the overdraft and it is taken away, you will then incur charges until you balance the account.
Does interest apply on current accounts?
You will usually have to pay interest when your current account balance is in debit. You will usually be paid interest when your account balance is in credit.
However, while the rate you pay in debit interest will be substantial - usually at around 20 per cent per year on average, though it can be much higher - the credit interest rate is normally just a fraction of a per cent. There are exceptions - sometimes banks offer higher credit interest rates to attract new customers. These will usually be limited to a certain length of time, such as a year. Some premium current accounts may offer higher interest rates over longer or indefinite terms.
How else can I earn money on my current account?
As well as the potential to earn interest on your credit balance, some current accounts offer small monthly payments as a reward when you pay in over a certain amount each month. Other accounts offer a small percentage of cashback on purchases you make using your debit card.
You can also reduce the amount of interest you have to pay on your mortgage by linking it to an offset current account.
What does 'AER' and 'EAR' mean?
'AER' stands for annual equivalent rate. It is a measure of comparison which describes the percentage of interest that you will earn on credit balances over a year, taking into account any fees that you have to pay on the account. It also takes into account the compounding of interest (interest paid on interest) when it is calculated and paid on a monthly, daily or other periodical basis.
'EAR' stands for equivalent annual rate. It works similarly to the AER, except it describes the amount of interest you will be charged on debit balances over the course of a year. Unlike the AER, it does not take into account fees you are charged for using your overdraft, or exceeding it.
How do I apply for a current account?
You can apply for a current account within a branch, over the telephone or over the Internet. If you are not opening the account in person you will need to either go into a branch to carry out some necessary documentation or send it in by post.
What ID will I need to open a current account?
To apply for a current account you will usually need two forms of identification - one to prove who you are and one to prove where you live.
Forms of identification that are commonly accepted include driving licenses, passports, bank statements, utility bills, council administration letters, pension books and the electoral roll (provided you're registered to vote).
How old do I have to be to have a current account?
Current accounts are available in various forms to people of all ages, including those under 18. However, those under the age of 18 will not be able to access an overdraft facility and may be restricted to certain types of debit cards and other services.
Do I have to be a British citizen to have a current account?
There are no restrictions on citizenship for holding a current account. You will need to be resident in the UK for most accounts issued by UK banks, however specialist non-resident current accounts are available.
Do I have to pay for a current account?
Most current accounts do not carry standard operating fees. You will only be charged when you break the terms or conditions, such as exceeding your overdraft, or if you need to utilise non-standard services, such as international bank transfers.
However, some current accounts do charge a standard operating fee, usually on a monthly basis. The most common of these are 'packaged current accounts', which offer a number of additional non-banking services such as insurance cover.
What is a packaged current account?
A packaged current account is a type of bank account that gives you access to a number of additional products, services and subscriptions that are not usually associated with a current account. These additional benefits are provided by the bank itself and a number of third parties and can include mobile phone insurance, travel insurance, breakdown cover, home emergency cover, discounts at retail and leisure chains and more.You usually have to pay a monthly fee for a packaged current account, starting from a few pounds per month. To assess whether or not a packaged current account would be economically prudent for you, calculate the current costs of any of the services that you use over a yearly basis and compare against the annual fees of the packaged current account. However, you must ensure that the level of service that you get with the current account matches what you'd receive without it. This is especially pertinent with insurance products.
Does a current account affect my credit profile?
Not only does your credit profile affect which current accounts you will be eligible to open, the way you operate your account will also influence your credit profile moving forwards. Regularly incurring bank charges by exceeding your overdraft limit or using an unauthorised overdraft may affect your eligibility for other banking products such as mortgages, credit cards and loans in the future.
How do I avoid bank charges?
In order to avoid bank charges for using unauthorised overdrafts, align your outgoings through your direct debits and standing orders to leave your account shortly after your regular income hits your account. Make sure you keep a firm grasp of which dates you are billed for services and keep a regular eye on your outgoings via a mobile app, through online statements or balance checks at cash machines.
In addition, check with your bank about which point during the day you incur a charge when you exceed your overdraft. Some banks offer a grace period of hours or even days, meaning that if you do go overdrawn you can rectify the situation without incurring a charge.
You can find more information by reading our guide to banking fees and charges.
I have a bad credit history - what can I do?
Most banks offer basic current accounts for people that have suffered from financial problems in the past. These accounts will usually feature most of the core functionality of other current accounts such as the issuing of a debit card and the ability to set up standing orders. However, some features may not be available, especially those related to credit, such as an overdraft facility. There may also be limits on how basic current accounts are accessed, with restrictions on in-branch counter services. Basic account holders may be limited to online, telephone and automated machine access points.
What's the difference between standing orders and direct debits?
Standing orders and direct debits are both methods of making regular outgoing payments from your current account.
The key difference is that the terms of a standing order - how much you pay and which date you pay it - are controlled by you. With a direct debit, meanwhile, the third party that you authorise to take payments from your account is at liberty to control how much they take and when.
You can cancel direct debits and standing orders at any time. However, if you cancel a payment within a short period before it leaves your account it may still be taken.
Click here to explore the latest current accounts from some of the leading mainstream and niche providers with Know Your Money's comparison tables.