The Ugly Side Of Current Accounts

Serena Cowdy has a look at the ugly aspects of some UK current accounts - so you can choose the one that best fits your needs.

This article was first sent to Fools as part of our 'The Good, The Bad and The Ugly' email series. 

I'm going to have a look at the ugly aspects of some UK current accounts.

Recent BBC research found that Britons are more likely to get divorced than switch banks - despite the fact that 50% of those questioned said they were unhappy with their bank's service.

But it needn't be like this! Your current account is one financial product you're likely to use pretty regularly, and, when it comes to current accounts, the banks play lots of ugly tricks to try and extract money from you.

Of course, beauty is in the eye of the beholder, so an account feature that is ugly for one person may be fine for another. It depends on your financial circumstances.

Anyway, here are the ugliest traits. Once you're aware of them you should be able to pick a current account that is attractive for you.

Paltry interest when in credit

Sadly, there are several current accounts that pay customers no interest on their money - at all. The Co-operative Bank's Current Account is one example - but there are plenty more.

Many others only pay interest if you've got a substantial amount of cash in the account, which seems odd to me. After all, if you've always got hundreds of pounds sitting in your current account, why not put it in a savings account and earn much better rates of interest.

Other current accounts do pay interest on all funds stored in them, but the rates for some of these are so miniscule they hardly seem worth it.

The Barclays Bank bank account and the Natwest Current Plus (along with several others) offer a measly rate of just 0.1%.

No authorised overdraft

Some accounts start charging interest as soon as you go in the red. That's ok if you're very good at managing your finances, but if you do want that emergency 'cushion', make sure the account you choose includes an authorised overdraft.

The Norwich & Peterborough Basic Banking Account (for people with low credit ratings) is just one example of an account with no authorised overdraft. If you find yourself in the red on this account, you'll be hit by a 24.9% interest rate.

The Norwich and Peterborough Gold Current Account, on the other hand, does include a £500 fee-free overdraft. It also offers 0% interest, for six months, on the overdrafts of people switching to the account.

High interest on authorised overdrafts

If the account does come with an authorised overdraft, make sure you find out about the interest rate charged.

For example, if you end up spending a lot of time in the red, you may want to steer clear of Lloyds TSB's Classic Account. It charges interest of 19.3% on authorised overdrafts, and it's got no interest-free 'buffer' amount.

REALLY high interest on unauthorised overdrafts

We all know that running up an unauthorised overdraft is a bad idea. But if the worst happens, what will it cost you?

Some accounts definitely do hit you harder than others. The Halifax Current Account charges a whopping 29.8% interest on unauthorised overdrafts - and it's not the only one.

Whopping penalty charges

Penalty bank charges have hit the headlines in the last couple of years, and some providers have been forced to back down from charging their most outrageous penalty fees.

However, horribly high charges do still exist. Before you sign on the dotted line, always read the small print and don't be afraid to ask the awkward questions.

Is there a 'buffer amount' before you get charged for exceeding your overdraft? Or do the charges mount up if you're in the red by just a penny?

And are you granted a 24-hour 'grace' period to get the funds back into the account? Do your research thoroughly and avoid all those nasty surprises...

The perfect fit

If an account falls into just one of the categories above, it may still be the right one for you.

For example, if interest is important to you but you never go into your overdraft, the Halifax High Interest Current Account may be what you're looking for. You'll pay at least 15.9% interest on an authorised overdraft, but it does pay you up to 6.17% interest AER when you're in credit. 

So there you have it. Make sure you decide what's top of your priority list, do the research, and you should be able to find a current account that isn't ugly for you.

More: Top Five Current Accounts

To make the hunt that bit easier, visit The Fool's current account comparison centre.