Types of current account
Unsure which current account best suits your needs? Our guide below takes you through the most common types of account currently available in the UK.
What is a standard current account?
A current account is an everyday bank account. It is designed to hold the money that you spend on a regular basis - either on day-to-day living costs or usual household bills.
A current account will usually provide you with a debit card that you can use in cash machines, in shops and online. The account also offers the ability to automatically pay direct debits and standing orders, to make international transfers and buy foreign exchange.
To credit the account you either pay in cash, transfer from another account or receive regular income such as wages and pensions.
Some current accounts offer overdraft facilities that you can use to borrow a small amount in the short term. How much you can borrow depends on your credit rating, as will the interest rate that you pay on your debt.
You have the option to administer your account in branch, on the bank's website, through mobile apps and over the telephone.
What is a basic current account?
A basic current account offers a simple range of essential every-day banking services, limited mostly to payments in and out through standing orders and debit card facilities. They are aimed at people with low credit ratings, such as young people, pensioners, the unemployed and those who have previously experienced financial difficulties.
Basic current accounts are designed to help people manage their finances more easily. As such, overdraft facilities are not usually offered. There are also sometimes restrictions on how much the holder can withdraw from cash machines in a single day (although these limitations can usually be set by the account holder).
Basic accounts are offered by both high street banks and niche providers that specialise in services for people that might be refused them through regular channels. However, access to the account is sometimes restricted to automated and self-service facilities, such as online, telephone, and ATMs, rather than over-the-counter services in branch.
What is a business current account?
Business bank accounts provide current account services for small businesses. As with personal accounts, they offer debit cards, overdraft facilities, cheque books and automated payments, such as direct debits and standing orders.
However, a business bank account usually offers a range of additional benefits too. These can include change facilities, the option of a much higher overdraft, access to business guides and training materials, the use of communal meeting rooms and business-class travel facilities, foreign exchange discounts, fast international payments, insurance, and more.
The most basic business banking accounts are free. For more complex services, or for bigger businesses, you'll pay either a flat monthly fee, pay-as-you-go by the transaction, or a mixture of both.
What is a high interest current account?
Most current accounts offer low levels of credit interest. Some, though, offer interest rates that rival the leading open interest savings accounts, in order to attract new customers or reward highly valued ones.
These accounts are best suited to people who often have to keep large amounts of money in their current account to pay off big bills.
Sometimes the high interest rate is offered for a limited period following the opening of the account. In other cases the interest is calculated on a staggered system, whereby it increases or decreases as per the balance held in the account.
Other than the interest, the account works just like any other current account.
Minimum monthly investment levels may apply, and the interest may be capped.
What are student and graduate current accounts?
Student current accounts are designed to help those in further education manage their finances and access larger overdrafts than they would otherwise be able to, at cheap (and often free) interest levels.
Most student accounts also offer additional benefits including discounts in retail outlets, rail cards for cheaper train fares, and money management facilities such as dedicated mobile apps and cash transfer services.
Other than these perks, a student current account operates just as any other current account does, with much the same services offered.
When a student finishes their education, their student current account usually automatically becomes a graduate current account. The account holder may not notice much immediate difference in the account. However, the overdraft facility will usually be reduced over a period of years or months, allowing the holder to pay off what they have borrowed when they begin to earn a regular monthly income.
If the account holder fails to reduce their arrears in line with the schedule set out by the bank, they could find that their balance is in excess of their overdraft level and they then incur significant debit interest or bank charges.
What are packaged current accounts?
A packaged current account is a type of bank account that offers 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 account provider itself as well as a number of third parties. The benefits 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 packages 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.
What are overdraft current accounts?
An arranged overdraft facility on your current account allows you to borrow money on a casual basis, in a similar fashion and at a similar price point to a credit card.
Ranging from under one hundred pounds to thousands - depending on your needs and credit rating - overdrafts are a flexible and simple option for borrowing money in the short term. As such, they can provide peace of mind against unexpected economic turbulence.
An overdraft facility will usually stay on your account permanently, and you can use it at will. You can change the level you're allowed to borrow, up to your limit, as often you like. However, the bank is also at liberty to remove or reduce the facility at the end of the agreed period, which usually runs on an annual basis. You could then be forced to pay your debt down or face charges.
Overdraft facilities usually have fees attached to them. This will consist of either a monthly maintenance charge, debit interest on the money that you borrow, or a one-off daily fee for actually using the facility. If you go over your overdraft limit you'll face bank charges like you would if you didn't have a facility in place.
What is a mortgage offset current account?
A mortgage offset current account allows you to use the capital in your current account to reduce the amount of interest that you have to pay on your mortgage.
For example, if you have a mortgage with a debt of £200,000 outstanding, and you have a £25,000 credit balance in your mortgage offset current account, you would only pay interest on £175,000.
Mortgage offset current accounts are designed to give you flexible access to cash should you need it, while also allowing you to leverage your capital to reduce your overall debt maintenance obligations.
What is a managed current account?
Managed current accounts are a specialist type of current account that are designed to simplify your banking and help you to avoid going overdrawn. When your bank account is credited each month with your salary or other regular income source, the money you need to cover your bills is automatically separated, meaning you can only spend the money that you have left over. You can also opt to choose how much money gets transferred to the segregated bills share of the account.
The accounts are sometimes known as 'two tier' or 'dual accounts'.
They are designed to help you avoid bank charges from using unauthorised overdrafts. However, there may be monthly servicing fees attached.
What is an Islamic current account?
Sharia law does not permit the paying or receiving of interest. Therefore, there are a range of current accounts with special arrangements in place to meet the needs of the Muslim community.
Instead of paying interest, Islamic banks invest money into suitable ventures that comply with its customers' ethics, and then gift part of the profit to its account holders at its own discretion, instead of making formal agreements to pay at a certain rate.
What are community and green current accounts?
Some current accounts are designed to offer an environmentally-friendly service, including features such as paper-free banking and a commitment to invest in sustainable businesses with the money you deposit within your current account.
Similarly, other current accounts are offered with commitments to invest in community projects or socially responsible businesses.
These types of accounts are available from both high street banks and building societies as well as local specialists, co-operatives and credit unions.