Everything you need to know about current accounts
A current account is a type of bank account, our guide explains how they work, their pros and cons and if you need one
Key takeaways
Current accounts are perfect for managing your household bills, paying for groceries, and handling day-to-day expenses
Most current accounts don’t pay interest on the balance
A current account overdraft provides added flexibility and quick access to funds
In the hustle and bustle of daily life, managing finances efficiently is crucial. A current account serves as the backbone of personal finance, facilitating daily transactions. But what exactly is a current account, and how does it differ from other types of bank accounts? This guide will walk you through everything you need to know about current accounts.
What is a current account?
At its core, a current account is a type of bank account designed for frequent use. Unlike savings accounts, which are intended for accumulating funds over time, current accounts are all about accessibility and convenience. One of the key features of current accounts is that they usually come with a debit card. You can use your debit card to withdraw money from cash machines, pay your bills, and make online and contactless payments. It's important to remember that the money in your current account is the money you currently have – it's not borrowed money, unlike what you'd find with a credit card.
Who can open a current account?
Opening a current account is a rite of passage for many, marking a step towards financial independence. In the UK, banks typically require individuals to be at least 18 years old to open a current account, though some may accept those aged 16 and over. When you're ready to take the plunge, you'll need to provide proof of identity and a UK address. The specific requirements may vary by provider, but they generally include documents like a passport, driver's license, or utility bills.
Current account vs savings account
It's essential to distinguish between a current account and a savings account. While a current account is your go-to for daily spending, a savings account is where you store money for future goals, whether it's a vacation, a new car, or a rainy-day fund. Savings accounts typically offer interest over time, rewarding you for your patience and helping your money grow.
Benefits of having a current account
A current account isn't just a place to stash your cash; it comes with a host of benefits that make financial management a breeze:
Salary storage: Your employer can deposit your salary directly into your account.
Cash accessibility: Withdraw money at ATMs or bank branches with ease.
Financial safety net: Up to £85,000 of your money is protected under the Financial Services Compensation Scheme (FSCS) if your bank or building society fails.
Automated payments: Easy setup of direct debits and standing orders for regular payments, ensuring you never miss a bill.
FSCS Coverage
When it comes to financial security, the FSCS has got you covered. Most banks and building societies in the UK are FSCS-covered, meaning that up to £85,000 in your current account will be protected in the case your provider goes bust. This protection is a valuable safety net, giving you peace of mind that your money is secure.
Types of Current Accounts
There’s a range of current accounts available to suit different needs and preferences. Here are some of the most common types:
High Interest Current Account: Earn more from your money with higher interest rates, though these may be limited to an introductory period or capped at a certain amount.
Joint Bank Account: Share financial responsibilities with a partner or family member, making it easier to manage household expenses.
Basic Bank Account: A no-frills option for those who may not qualify for standard accounts, without the possibility of an overdraft.
Reward and Cashback Current Accounts: Get more from your spending with rewards like loyalty points, travel insurance, and cashback on purchases.
Children’s Bank Accounts: Teach financial responsibility early with accounts designed for 11 to 17-year-olds, managed by parents and without overdrafts.
Student Accounts: Tailored for the needs of students, these accounts often feature larger interest-free overdrafts and perks like discount railcards.
Understanding current account overdrafts
An overdraft is a feature that can be both a lifeline and a pitfall. A current account's overdraft allows you to spend more money than you have in your account. There are two types: authorised, which is pre-agreed with the bank, and unauthorised, which can incur significant fees. It's crucial to understand the terms and costs associated with overdrafts to avoid any unwelcome surprises.
Interest and current accounts
If you're looking to earn interest on your deposits, a current account might not be your best bet. Generally, you won’t earn any interest with your current account unless you opt for a high-interest bank account. For those seeking to make a return from interest rates, a savings account may be a more suitable option.
Opening a Current Account
Embarking on the journey to open a current account is a straightforward process. You’ll need some documents such as proof of identity and address. Age requirements will vary, but you’ll usually need to be over 18 to open a bank account. With the right documents in hand, you'll be ready to step into the world of modern banking.
Other useful guides
For those hungry for more knowledge, there are several guides available to deepen your understanding of current accounts:
Navigate the process of Switching bank accounts with ease.
Learn the ins and outs of Basic bank accounts and see if they're right for you.
Protect yourself from financial crime with our Bank fraud explained guide.
The pros and cons of having Multiple bank accounts
Compare current accounts with MoneySuperMarket
Choosing the right current account can be a daunting task, but MoneySuperMarket is here to help. Our platform assists in comparing current accounts from leading providers, highlighting cash incentives for switching. Filters help find specific types of accounts, like high interest or children’s accounts. Direct links to providers are available to complete applications. Let MoneySuperMarket be your ally in finding the perfect current account for your financial needs.
Your current account is the command centre of your personal finances. With the right account, you can streamline your financial activities, enjoy peace of mind with FSCS protection, and even reap rewards and interest. Whether you're opening your first account or considering a switch, understanding your options is key to making the most of your money. So, dive into the details, compare your choices, and take control of your financial future.
