A current account is probably your most important account. These accounts handle your inbound and outbound payments and act as the ‘nucleus’ of personal finance products. Let’s find out more about how they work.
A Transaction Account
A current account is a ‘transaction’ account that is designed to offer you easy access to your cash. Your income gets deposited into this account, while most of your outgoings – from your mortgage to your cash withdrawals – come out of this account.
A current account allows you to set up automatic payments, such as Direct Debits or Standing Orders, for anything that is paid periodically. This is useful because many companies offer discounts or cheaper rates for customers who opt to pay by this method.
Free Accounts or Paid-For Accounts?
Most current accounts are free to use, provided that you remain in credit. Some banks offer additional features, such as insurance, for a monthly fee. These are often known as packaged accounts.
If you spend more money than you have in your account, you’ll go into what’s called an overdraft. Most banks will allow customers an ‘arranged’ overdraft, which is less costly to use. But if you need to dip into the red frequently, it can be worth looking for an account that has a better deal on overdrafts, as the charges can really mount up.
So, what sort of things might you consider when it comes to choosing your bank account?
1. What do I want from my current account?
Some current accounts now offer decent interest rates, worth up to 5%. Some even have opportunities to earn cashback. However, these perks often require a minimum monthly deposit of up to £1,000 per month, so make sure you can meet this if you wish to reap the rewards.
Packaged accounts can offer a significant discount on buying products separately, but make sure you’re eligible to use them before you commit to anything.
2. Does it benefit me in other ways?
It might be worth thinking about your finances more broadly when it comes to choosing your provider, because lenders frequently make better products available to current account customers.
For example, if you’re interested in getting a mortgage or changing your existing mortgage, you might find that lenders offer better deals to their current account customers.
3. How do I switch my bank account?
Switching between banks is now easier than ever, thanks to a new seven-day switch service. Simply apply to a new bank, provide them with the details of your old account, and everything will be transferred across automatically within seven working days. Payments to and from the old account are redirected for over a year, and you’ll be guaranteed a refund if anything goes wrong.
If you’re not happy with your existing current account, think about what you need and get applying for a new one.
A number of banks were severely weakened during the recent financial crisis. The near-collapse of the Co-operative Bank in 2013 shows that this remains a cause for concern. So, for savers, it’s worth taking the steps to ensure that your deposits are safe in case your bank or building society goes bust.
The good news is that UK savers are protected for a large chunk of their savings by the Financial Services Compensation Scheme. This scheme covers deposits in current accounts, savings accounts, bonds and ISAs up to £85,000 per person per institution. For joint-accounts, the compensation limit is doubled to £170,000.
It’s fairly straightforward, but there are a number of complications. What is an institution, for example?
Have you been put off switching your bank account because of the hassle? Perhaps it’s now time for a change! The new 7-day switching system introduced in September makes it easier to switch current accounts than ever before. If you’re interested in switching banks, read on to find out more!
Welcome to this Which4U savings guide video. Today, we’re looking at how bonus rates affect savings accounts and ISAs.
It’s probably not such a secret any more, but many savings accounts and instant-access cash ISAs include attractive bonus rates to produce the headline rate you see on your screens, on advertising boards, or in pamphlets. However, these bonus rates tend to disappear after 12 months, and your returns could fall overnight by as much as 92%.
Let’s check out some of them here. We see one example of a 3%+ account, supported by a bonus that leaves a paltry rate of just 0.5%. Inflation is much higher than this, and it’s just not a good enough return.
So, what’s the optimum way to deal with this issue and make the most of your savings?
Well, the best way of making the most of savings is to ensure that you keep a headline rate. So, check carefully about the details of the savings account or ISA that you are investigating. Make a careful note of the expiry of the bonus rate, and ensure that you move your savings to a new account at this time.
It all seems simple. Really, it is. But there’s a problem. This assumes that we’re all perfectly efficient. But research across the board shows that, by and large, the majority of savers just don’t operate with this efficiency or opportunism.
Traditional savings patterns aren’t normally governed around switching on a yearly basis, and that’s not a situation that’s likely to change overnight. So – while it may be controversial – at Which4U, we would suggest that it’s just as important to judge the value of a savings account or ISA beyond 12 months.
While decent ‘standard’ rates that follow the expiry of bonuses rates are rarely brilliant, some can still be far better than others.
You’ll see that in our savings guides and commentary, I’ve used charts and graphs to demonstrate my reasoning. Here’s an example created in the peak of ISA season.
If we place a lump sum of £5,340 in these ISAs, and monitor what would happen if we left it there for two years, the results are very interesting. Two of the best three performing accounts from the first year were the worst performing in the second year. This investment in the Cheshire Building Society would still have reaped almost £120 in interest in the second year. That’s £92 more than the AA or Santander.
So, why are standard rates important? If we look at this graph: this 12 month point is where the bonuses fall away and the returns become very little. After as little as two weeks, other accounts could start outperforming that which sparkled initially and then disintegrated to nothing.
And normal savings accounts are exactly the same. Let’s have a look at a recent graph here.
As we can see, some tail off, while accounts with stronger standard rates perform more strongly for longer.
Some accounts, we see here, Sainsbury’s and Virgin Money – have no bonus rate at all, so there is no loss.
As this clearly shows, for a small sacrifice in the headline rate, it’s not long before you’re laughing, and this is without you having to worry so much about dates, deadlines, expiries, transfers and all else.
In summary: it’s regrettable, but it takes much more effort these days to make the very best of your savings, especially if you want to retain easy access to your cash.
Be that as it may, if you know you’re not going to want to chop and change, consider the ‘standard rate’, using our guides for help, to see how you can avoid the rates that crash and burn and still offer you something substantial in the longer-term.
So, hopefully now you feel in a better position to make more from your savings. Why not bookmark our savings guides on Which4U for updates on the best products, for one year and beyond? Check out our YouTube channel for more video guides, and follow us on Facebook and Twitter as well. If you have any questions, comments, or feedback, please do drop us a line. We’d be pleased to hear from you.
Options for savers have been limited for a long time now. With interest rates still at a record low, savers are mostly limited to fixed-rate products or riskier peer-to-peer options if they want to make any decent returns on their savings.
The two types of standard savings account that stand out from the rest are fixed-term bonds and Individual Savings Accounts (ISAs). Although these are similar in some respects, there are pros and cons to each that need to be evaluated before making a choice between the two.