The best current accounts for 2011

Rachel Wait takes a closer look at some of the best current accounts on the market.

Unless you’ve been hiding under a rock for the past year or so, you’re bound to have heard the name ‘Santander’ being bandied about a lot. Indeed, it seems impossible to escape the claws of the Spanish giant.

Here at lovemoney.com, we’ve often praised Santander for its great offerings on current accounts. And that’s simply because whether you’re prone to slipping into the red or you religiously stay in the black, Santander has a range of very competitive current accounts to take advantage of.

That said, we have been very critical of Santander’s approach to its customer service - read 2000 reasons to hate this bank to find out more.

And we’ve pointed out that one of the major drawbacks to the highly competitive fee-free Santander Zero Current Account has been that it’s only available to Santander mortgage and investment customers. As a result, the account has been off-limits to a lot of people.

Yet this month, this rule has changed. Santander is now making its Zero Current Account  available to customers with £10,000 or more in savings with Santander (this can be spread across more than one account). And according to Santander, this means the number of Santander customers who can switch to the fee-free Santander Zero Current Account will increase to four million.

What makes this account so good?

Well, for a start, like the Santander Preferred In-Credit Account, the Zero account offers an impressive 5% interest on balances up to £2,500. That’s more than many savings accounts pay these days. What’s more, if you switch over to the account, you’ll also receive £100 in cash. Just bear in mind you will need to pay £1,000 into the account each month to qualify.

But the benefits don’t end there. If you use your debit card when you're abroad to buy anything or withdraw cash, you won’t be charged a fee (providing you select to have the transaction or withdrawal processed in the local currency). Very useful for your holiday!

There are also no fees for going into an unarranged overdraft, or exceeding your arranged overdraft, although you will still be charged an interest rate of 12.9% for slipping into the red.

What’s more, you’ll also qualify for the Santander Zero Credit Card which won’t charge you a foreign transaction fee or a cash advance fee! So this is a pretty handy credit card to have in your wallet if you travel frequently. Just bear in mind that if you do withdraw any money on your credit card, you’ll be charged interest from the day you withdraw your cash at a rate of 27.9%.

The Santander Zero Credit Card also offers 0% interest on balance transfers and purchases for six months and won’t charge you a balance transfer fee!

So overall, the Santander Zero Current Account sounds like a pretty decent account to consider applying for – providing the new rules mean you'll qualify.

But let's face it, £10,000 is a fairly large sum of money. And even if you do have this amount of money in your savings account, chances are, your money is invested with another lender and you may not be prepared to switch - particularly if the interest rate you're getting on your current savings account is significantly better than anything offered by Santander.

So if you don't qualify for the Zero Current Account, are there any other competitive options or do you have to miss out?

Best for interest rates

The table below highlights three of the best current accounts on the market for those of you who stay in the black.

So as you can see, there are other competitive current accounts on the market if you don’t qualify for the Santander Zero Account. Sticking with Santander, you can still earn 5% on your current account if you apply for the Santander Preferred In-Credit Account and you’ll also still receive for the £100 in cash if you switch over all of your direct debits. (You’ll need to pay £1,000 a month into the account to qualify.)

However, unlike the Zero Account, the Santander Preferred In-Credit Account isn’t fee-free, so you won’t have the benefits of using your debit card abroad, and you'll also be charged for going into an unarranged overdraft (£25 a month).

If you’d prefer to steer clear of Santander all together and you have between £5,000 and £7,000 in your current account, you could apply for the Lloyds TSB Classic Account with Vantage which offers a slightly lower interest rate of 4% - this is still far better than the majority of savings accounts are paying. Again, you will need to fund the account with £1,000 a month.

Alternatively, the Halifax Reward Current Account will simply give you £5 every month you pay in £1,000 whether you’re in credit or overdrawn. Not bad!

Best for overdrafts

If, on the other hand, you’re prone to slipping into the red on a regular basis, take a look at the following current accounts which might float your boat.

If avoiding hefty interest rates on your overdraft is a priority, the Santander Preferred Overdraft Rate Account offers an interest-free overdraft for 12 months. And Santander says it will match your previous overdraft up to £5,000. So this means you’ll have a whole year to enjoy your overdraft without worrying about paying any interest - and in fact, this beats the Zero Current Account.

That said, you should try to get out of the habit of using your overdraft before the 12 month period comes to an end. Otherwise you’ll be charged an interest rate of 12.9%. And bear in mind you will need to fund this account with £1,000 a month. Read Three ways to get rid of your overdraft for good for some top tips.

However, if customer service is a bigger priority, you might prefer to avoid Santander. Instead, you could opt for First Direct’s 1st Account. Although this offers a much smaller interest-free overdraft of £250, the lender is renowned for its excellent customer service.

What’s more, you’ll receive £100 in cash for switching to the account and if you’re not happy within 12 months, you’ll be given another £100 to leave. Note, however, you will need to pay £1,500 into the account each month.

And try to avoid going over your overdraft limit, otherwise you’ll be charged an interest rate of 15.9%.

So if you’re after a new current account, hopefully there’s something here for you – whether or not you qualify for the Santander Zero Current Account. Happy New Year!

More: Five reasons why you should ditch your current account | Good news for everyone with a current account

This article has been updated from an earlier version published last year.

Compare current accounts with lovemoney.com