Pick the right current account and it could make or save you over one hundred pounds a year. Isn't that worth switching for?
According to my reckonings, there are three types of current account users. The first are the "sensible" types, whose accounts are always in credit. The second are the more "frivolous" types, whose accounts are generally overdrawn. And the third, and this describes me, are the "sweepers". We keep the bare minimum in our current accounts at all times, sweeping out the rest into a high-interest savings account.
Now, all current accounts are not the same, which means that if you haven't changed your account for a while it could be you're missing out. Sensible types keeping hefty balances in their accounts but earning just 0.1% AER, for example, could be losing hundreds of pounds in potential interest. Frivolous types paying expensive overdraft rates could be spending far more than they need each month. And sweepers could be missing out on freebies or other goodies.
Let's take a look at some of the accounts on the market at the moment that are suitable for each type of account user.
1. Sensible current account users
Sensible folk never go overdrawn and so completely avoid the potential of being ripped off by their bank's overdraft fee. And by keeping a healthy balance in their accounts, they are prepared for anything. So in my opinion, picking an account that pays a decent rate of interest is your best bet. Your money should be easily accessible, but still earning a great rate.
Account | Credit interest (AER) | Bonus/Extras | Conditions |
|---|---|---|---|
Abbey Bank Account | 8% on balances up to £2,500. | Rate lasts 12 months, after this it drops to 2.5%. Interest-free overdraft for first 4 months. | Must deposit at least £1k per month. |
Alliance & Leicester | 6.5% (fixed until 31/10/08) on balances up to £2,500 | 0% overdraft for one year. Recommend a friend and you will each get £25. | Must deposit £500 monthly |
Coventry BS | 6.35% on balances up to £250,000 | Includes 0.85% bonus for 1 year. Interest-free £250 overdraft facility. | Must deposit at least £1k per month. |
Halifax | 6.17% on balances up to £2,500 | N/A | Must deposit at least £1k per month. |
Norwich & Peterborough BS | 4.85% | N/A |
As you can see, Abbey's account comes top with its staggering rate of 8% AER. However, take note that this effectively includes a 12 month, 5.5% bonus (the rate drops to just 2.5% after this time). Coventry's First account also includes a 12-month bonus which, once expired, makes its rate quite uncompetitive. If the idea of shifting current account again in a year is unappealing (which no doubt for most it will be) I would look instead to the Alliance & Leicester or Halifax accounts.
2. Frivolous current account users
Are you usually in the red? Do you manage a few days each month (after payday) when your account looks healthy, only for it to become quickly overdrawn again? If so, no doubt you'll have felt the sting of overdraft interest or, worse still, an unauthorised overdraft charge. And with unauthorised overdrafts typically charging interest at over 24% EAR, this can be a very expensive situation indeed.
Luckily, there are accounts out there offering relatively cheap overdraft facilities for set periods, giving you some time to pay off that nasty debt while paying less interest/charges on it. Check these out:
Account | Overdraft (EAR) | Credit interest (AER) | Extras | Conditions |
|---|---|---|---|---|
Alliance & Leicester Premier Direct Account | 0% overdraft for one year, 5.9% thereafter. | 6.5%AER (fixed until 31.10.08) on balances up to £2,500 | Recommend a friend and you will each get £25. | Must deposit £500 monthly |
Alliance & Leicester Premier Account | 0% overdraft for one year, 7.9% thereafter. | Free European travel insurance. Can be linked to the Premier Regular Saver, paying 12% AER. Recommend a friend and you'll each get £25. | Must deposit £500 monthly | |
Halifax Moneyback Account | 6.9% | 0.1% | 1% cashback awarded on first £10k of purchases made with your debit card both in the UK and abroad. | Must deposit at least £1k per month. |
Norwich & Peterborough BS Gold Account | 7.74% | 4.85% | ||
Nationwide BS FlexAccount Account | 7.75% | 4.25% (if £1k paid in per month) | Free debit card use abroad. | If £500 is paid in per month interest rate = 1.25% AER (£500 or less = 0.25%). |
Top account again is from Alliance & Leicester, offering an interest-free overdraft for 12 months both with its Premier Direct and Premier accounts. However, this does last for a year only, so you really need to try and pay off that overdraft during that time.
3. Sweepers
And finally, if you're a "sweeper", choosing to leave the bare minimum in your account to cover the direct debits and sweeping all excess funds into a high-interest savings account, you can really pick the account that offers the extras you want, as you don't need a great interest or overdraft rate.
For instance, if you travel regularly, the Nationwide FlexAccount allows you to make cash machine withdrawals abroad with your debit card for free. The A&L Premier account gives a free annual European travel insurance policy. Or if you're really organised you could take out an A&L Premier Direct account with a free overdraft and dip into that, while saving your cash elsewhere (and by getting a friend to refer you, make £25 each, too).
If you are a sweeper, as a final note it is essential that you leave enough in your account to prevent you from going overdrawn and being charged. If you occasionally slip into the red, consider an account such as the Chelsea BS First account, which offers a £250 interest-free overdraft, just in case.
So there you have it, some of the best accounts on the market for all kinds of current-account users. And don't underestimate the power of moving account: by earning a great rate on your balance, avoiding overdraft fees or snapping up freebies you could make (or save) over a hundred pounds each year! Figure out which type you are and make sure getting the most from your bank account.
> Compare current accounts through The Fool.