@choosenet
Facebook
More

| Money

CURRENT accounts are a central part of our everyday lives.

They're where our salaries are paid, where we get the cash for the grocery shopping and, just generally, where we store and access our day to day money.

Consumers lose thousands of pounds every year by making the wrong current account choices: being over charged for overdraft facilities or making less than they could be in interest rates.

So how do you make the right decisions? Here are a number of points to consider and decide upon before you apply.

Sometimes overdrawn: check overdrafts

If you ever need to use an overdraft facility, even occasionally, you need to take this into account when opening a new current account.

If your balance is always healthy, however, it may not be worth having this facility in place: most current account providers now force consumers to choose between an overdraft and rewards such as interest.

In that case, skip to the next section.

Interest-free overdrafts

Interest-free overdrafts - even up to a certain amount or with a set time period of repayment - are increasingly rare.

Many accounts only extend them as introductory offers for a year or even just the first few months after the account is opened.

Most have monthly minimum payment thresholds (e.g. '£1,500 must be paid into the account each month') which could exclude those on lower salaries.

Authorised and unauthorised

If an interest-free overdraft will run out or you're unable to apply for one then checking authorised and unauthorised overdraft charges is a checklist must.

Many accounts now advertise their overdrafts as 'interest-free' yet they charge fees per pay that could be much more expensive than what sounds like a hefty APR.

For example:

	Overdraft conditions	Cost 2 days overdrawn	Cost 7 days overdrawn	Cost 1 month overdrawn
£1,000 over	18% EAR	£0.91	£3.18	£13.70
£1,000 over	£1 a day, £30 month max	£2	£7	£30
£500 over	18% EAR	£0.45	£1.59	£6.85

As you can see, such fees can be particularly poor value when the overdraft amount is only fairly small as, for those who just need a little extra help at the end of the month, it usually is.

Authorised overdraft costs can be compared using our current account comparison table note that some banks provide preferential treatment for existing customers.

However, it's also worth researching which accounts will charge for going into an unauthorised overdraft or for making subsequent transactions once borrowing using either form of overdraft.

There will usually be an on the spot charge for going beyond your overdraft limit, but the severity of these charges will vary from one account to the next.

These charges can be spectacularly high and, although you can apply for an authorised overdraft during the current account application process, the bank is not obligated to extend this.

It's subject to the same credit checks as any other form of borrowing.

Never overdrawn: interest and rewards

If you are on the other end of the spectrum where cash is always flowing into your account much faster than it's flowing out, you need to think about interest rates.

Interest rates

Any cash left in your account for long periods of time has the potential to grow by a certain amount.

If you are likely to have a constantly high balance then it's worth going for a current account with the highest interest rates which make the most of your surplus cash.

The difference can be as much as 5%, a significant amount no matter what your account balance is.

Some current accounts can even offer better interest rates than accounts designed to add interest, so look out for this if you're planning to set one of those up too.

Like overdrafts, interest rates can also be part of introductory offers, the rates decreasing severely after a certain period.

They may also stop paying out after you reach a certain account balance.

Make sure you check the small print carefully for these crucial details.

Rewards

If you're a loyal customer who is always in credit then you may also want to consider the rewards attached to the current account.

These could be anything from cash bonuses to special insurance rates to general deals only available to account customers.

Don't be drawn in by just the rewards though - you'll likely lose out overall if one of the other features of the account isn't fully suited to your needs.

Account types

Another question to ask yourself is 'will my application be accepted'?

You may see a special rate which looks perfect for what you require but these can sometimes have restrictions attached to them.

Some may require you to pay in a minimum amount each month, or make a minimum amount of transactions.

Make sure you are financially able to meet the requirements before you apply, and you are happy to comply with any restrictions.

Packaged accounts

Some accounts, usually calling themselves 'premium' or a similar word implying a superior service, will offer you certain privileged facilities for a small charge every month.

Whether these packaged accounts are worthwhile will completely depend on how many of these benefits are actually put to use, however.

Many bundle extras such as identity theft insurance or mobile phone insurance are often unnecessary either because the cover they offer is slight and unlikely to ever pay out or because it duplicates cover offered by home insurance policies that most people have already.

In all cases packaged accounts are definitely worth researching first, no matter what your financial situation may be.

Special accounts

There are also special current accounts on the market for students, young people and graduates.

Student accounts are usually more lenient than other current accounts, offering interest-free overdrafts for long periods of time and enticing introductory bonuses.

These can include student railcards, cash incentives, CDs, DVDs or even USB drives.

However, an overdraft can be essential whilst you're at university, so make sure you consider this feature carefully rather than just being drawn in by the freebies.

These current accounts will change into graduate accounts when you leave university, giving you some time to pay off any remaining debt.

Ensure that you know all of the particulars of both accounts and how they will change as you make your way through university and into the wider world.

Bad credit options

Those with a bad credit history might face rejection from the mainstream current accounts we have discussed so far.

For them, overdraft-free basic current accounts can be the best option.

These accounts require a positive balance before allowing the account holder to spend or withdraw any money.

See our guide to basic and managed bank accounts for more on this.

Customer service

The same is true whether we're in a restaurant or looking for a current account - there are banks that take a lot of care over their customers and some who do not.

If you value a bright welcoming smile and a fast and friendly service, then you will have to consider this customer service element carefully before applying.

But this goes further than how staff greet you when you walk into a branch.

• Is their telephone service fast and informative?
• Do they have a fully functioning internet banking site that never crashes?
• How often do they send you bank statements and in what format?

Our current accounts with great customer service feature considers this issue in more detail.

Make sure you know about all of your prospective bank's services, how they treat their customers and whether their approach will suit you.

If you don't you could end up spending a perhaps unnecessary long and frustrating time on bank matters.