Current accounts are the transactional bank accounts, through which bank customers undertake most of their day-to-day banking needs. In the United States, these accounts are referred to instead as checking accounts. Typically, a current account is needed in order for your employer to pay your salary into and will be used to take payments relating to your mortgage, loans, credit cards and insurance policies. It’s therefore a pretty fundamental part of any person’s financial portfolio. With that in mind, let’s look at some of the usual characteristics of a current account.
Access to a cash or debit card:
We sometimes take for granted the ease of buying goods or services in shops, over the phone, or via the Internet. Such transactions are facilitated via the availability of bank cards. The simplest type of bank card is a cash card, which just provides the ability to withdraw funds from a cash machine. Credit scoring is used to determine whether an individual qualifies for a debit card and these cards provide the additional ability to use the card to pay for goods over the Internet, over the phone, or by inserting the card into a card device in stores.
Access to an overdraft facility:
Subject to credit scoring, a current account customer may qualify for an authorised overdraft facility. This simply means that the person is permitted to take their balance below £0 provided that they don’t exceed the agreed overdraft limit. If the person sticks within their overdraft limit, then they will avoid unauthorised overdraft charges. However, the overdrawn balance will still normally be subject to a debtor interest rate.
Availability of standing orders and direct debits:
When you’ve opened your current account, you can then set up automated payment instructions on it. For example, many current account customers set up a monthly standing order to transfer money across from their current account to their savings account. For example, if I am paid on the 20th each month, then I might choose to set up a standing order for £100 to be transferred to my savings account on the 21st each month. Similarly, individuals can arrange for direct debits to be set up and these can be used to meet regular commitments such as mortgage payments, credit card payments, gas and electricity payments, etc.
Sometimes free, sometimes not:
There has been a longstanding tradition in the UK of providing current accounts that do not charge a monthly subscription fee. Therefore, as long as a person doesn’t go into an unauthorised overdraft position, then they will not incur any bank charges. However, more recently, there has been a trend to offer value added current accounts (often referred to as packaged accounts) where the user pays a monthly fee and in return they get all the normal current account features, plus some added benefits. The added benefits will vary from bank to bank but can include such things as free breakdown cover, discounts on meals at certain restaurant chains, preferential rates on other bank products, etc. When deciding whether to go with a free current account or one that has a subscription fee, you will need to weigh up whether you will get enough value from the offered benefits to justify the monthly fee.
Lower creditor interest than on savings accounts:
Current accounts are not the place to save your surplus cash. Although there are some exceptions, most current accounts offer derisory creditor interest rates and bank users should therefore open a high interest rate savings account to hold their spare money. As already mentioned, you can link your current account and savings account via a standing order, or you can make ad hoc transfers of money into your savings account by using services such as Internet banking, mobile phone banking, telephone banking or the old fashioned way by popping into a branch.
Access to various banking channels:
Most current accounts provide you with the ability to manage them through Internet banking and mobile phone banking services, which is very useful.
Hefty fees where you go into an unauthorised overdraft position:
A danger with current accounts is that there are usually hefty fees to be paid if a customer allows their account to go into an unauthorised overdraft. These fees can include a one-off monthly service charge, plus fees (such as paid referral fees and unpaid item charges) that are levied per transaction that you attempt whilst in an unauthorised overdraft position. There is a lot of controversy over these banks fees but the key advice remains to do all you can not to get into a position where your account is in an authorised overdraft state.
All banks offer current accounts and there will typically be a large number of accounts to choose from. As well as the mainstream current accounts, banks also offer current accounts aimed at teens, students, and sometimes graduates. Opening a current account normally involves completing an application form (which can be done online or in branch) and then providing some supporting documentation (passport, driving licence, utility bills, etc) to confirm both your current address and your identity. If you become unhappy with your existing current account, then you are entitled to switch to another account and/or provider, free of charge.