As a result comparing current accounts can be like comparing apples and pears, so you'd be forgiven for not knowing which is the most suitable deal for your circumstances. We've therefore done the number crunching for you and identified the leading accounts for different types of users.
Halifax Reward Account
Best if you tend to have between zero and £1,500 in your current account.
Launched earlier this year, Halifax's Reward Account doesn't pay interest on balances in credit. Instead customers receive a flat monthly 'reward' of £5 - £60 a year - as long as at least £1,000 is paid into the account each month. You don't have to maintain that balance and the reward is paid even if you go overdrawn.
However, this account is an expensive option if you are regularly overdrawn. As well as abolishing in-credit interest, Halifax has abandoned charging an annual rate of interest on overdrafts. Instead customers who go into the red pay £1 a day on overdrafts up to £2,500. The charge rises to £2 a day on overdrafts above £2,500 and if you go overdrawn without permission you'll incur a daily charge of £5.
So if your current account is always overdrawn, you'll be paying more than £300 a year in overdraft fees.
As long as you aren't in the red for more than five days each month, this account is still a good deal as your £5 monthly reward will wipe out the overdraft charges (assuming you pay in £1,000). But anything more than that, and there are better options to be had.
Alliance & Leicester Premier Direct
Best for balances between £1,501 and £2,500 or if you tend to be overdrawn for the entire month.
The Alliance & Leicester (A&L) Premier Direct account has attractive terms whether you're in the black or in the red.
For those in credit it offers an interest rate of 6.00% up to £2,500. This is fixed for the first 12-months. However, the rate drops to 1.00% after the first year and you earn just 0.10% on balances above £2,500.
Premier Direct is an internet-based account so there is no branch access and you must deposit at least £500 a month.
The optimal amount to keep in this account in order to benefit from the 6% offer is between £1,501 and £2,500. Someone with an average balance of £2,000 would earn £120 in interest over the first year. However, if your current account balance tends to be above £2,500 the account loses its edge and there are better alternatives.
It's not only for those who run their current accounts in-credit that this account is attractive for, it's also great if you're regularly overdrawn.
A&L offers a free overdraft for a year on borrowing up to £2,000 but it also has one of the most compelling long-term overdraft deals. As with the Halifax Reward Account, A&L has stopped charging an annual interest rate on overdrafts. Instead you pay 50p a day for being in the red. However, unlike Halifax, the amount you can be charged is capped at £5 per month making it a much more competitive deal for those who are in the red for most, or all of the month.
A&L's overdraft terms apply to all of its current accounts, not just Premier Direct. If an overdraft facility is an important factor for you, you may also want to consider the A&L Premier account. The in-credit rate is lower at 0.50% on balances up to £2,500, but you are not restricted to banking online as it is a branch-based account. It also includes free European annual travel insurance.
Abbey Preferred In-Credit Rate Account and Abbey Preferred Overdraft Rate Account
The Preferred In-Credit Rate Account is best for balances from £1,501-£4,999; while the Preferred Overdraft Rate Account is best for those who tend to be overdrawn for around 15 days a month.
Abbey, which like A&L is owned by Santander, offers two current accounts and the one you opt for will depend on whether you spend most of the time in the black or the red.
If you're in credit, the Abbey Preferred In-Credit Rate matches the terms of the A&L deal by offering 6% interest for the first year up to £2,500 - so it's on a par with A&L's Premier Direct account for balances between £1,501 and £2,500. However, it has the edge if you keep more than £2,500 in your account as the rate on balances above this amount is 1%, compared with just 0.10% with A&L. This makes it the market leader for balances between £1,501 and £4,999.
For example, say your current account balance averages £4,000 you'd earn £165 annually through the Abbey account compared to £151.50 with A&L.
Customers with the Preferred In-Credit account must deposit at least £1,000 a month. This is not a competitive deal if you regularly use an overdraft facility as an annual interest rate of 19.90% is charged.
However, for those who tend to be overdrawn, Abbey's Preferred Overdraft Rate account is a good option and in some circumstances will beat A&L.
There is not much difference between this account and A&L's Premier or Premier Direct accounts for the first year, as overdrafts are free. However, after 12 months, you'll be charged an annual rate of 12.90% for being overdrawn.
Obviously because A&L charges a daily fee rather than a rate of interest, it can be hard to work out which is the better offer. It basically depends on the size of your overdraft and how long you're overdrawn for.
If you are overdrawn for less than five days a month the Halifax Reward Account is best.
If you spend around 15 days a month in the red, and your overdraft tends to be less than £900, Abbey's Preferred Overdraft Rate, is the best.
If you're overdrawn most of the time, or your overdraft is higher than about £900, A&L Premier Direct or A&L Premier are the best options.
Lloyds TSB Classic Account with Vantage
Best if you tend to have a balance of £5,000-£7,000.
On balances of £5,000 or more the Lloyds TSB Classic Account with Vantage comes into its own. This is a tiered account that offers a 4.00% interest rate on balances from £5,000-£7,000. This higher rate is paid on the entire balance, not just the amount above £5,000, but if your balance is less than £5,000 the interest rates are lower.
So if you kept a £5,000 balance in your current account you'd earn £200 in annual interest from this Lloyds TSB deal - £25 more than its nearest rival Abbey.
Coventry Building Society Coventry First and Cahoot Current Account
Best if you have more than £7,000 in a current account.
Both the Coventry First and Cahoot Current Account pay 1.10% up to £249,999, although the Coventry First account does include a 0.85% bonus for the first year.
However, it's not advisable to keep huge sums of money in one account. Under the terms of the Financial Services Compensation Scheme, the first £50,000 is totally protected if the institution goes bust. If you have more than that in cash, you should spread your money around between different banks and building societies. For more on this, read our article 'Who owns who?'.
In addition to the security factor, another reason not to keep a big balance in your current account is because you could be earning a better return with a savings account. So, if you do have a substantial amount of cash in a current account it's probably worth moving some of your money into a high interest savings account. Use our savings comparison tool to compare the latest savings rates.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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