Current Accounts

Current Accounts

A current account is a type of bank account used for everyday spending and can help you keep your money safe and allow you to manage your finances.

Finding the best current account for you

By Laura Rettie, Personal Finance Journalist.

Laura Rettie

Current accounts are essential for most people. Learn more about how they work and how to find the best current account with our guide.

What is a current account?

A current account is a type of bank account designed for day-to-day use where you can securely store money, receive payments and send money to others.

Current accounts allow you to manage your income and spending and are the most common types of bank accounts in the UK.

They're usually provided by traditional high street banks but are now offered by some building societies and digital banks via apps.

Each current account will have an account number and a sort code. These numbers are what are used to identify each account and will be needed when you want to make payments into your account or set up direct debits.

Your account number is usually eight digits long, and your sort code, which identifies the bank and branch you're using, is normally six digits long. The combination of account number and sort code is unique to you - no other person should have the same as you.

There are various types of current accounts, each having its unique set of features, functions and restrictions. Finding the right kind of current account is dependent on your financial situation and your financial goals.

What is a current account used for?

Current accounts are used for multiple purposes, which is why they're such a popular and versatile account type. Some of the main things they're used for include:

Receiving payment

A current account can be used to receive your salary or wages from your employer. With a current account, you can receive the majority of your incomings, including pension payments and any benefit payments you may have.

Withdrawing cash

With a current account, you're able to withdraw the money you have stored in your account as cash. To do this, you'll need a debit card, which should be issued to you when you first open your account.

You'll need to use your debit card at a cashpoint and enter your unique four-digit pin to withdraw cash. Some current accounts will have a daily withdrawal limit.

Daily spending

By using your debit card, you can also use your current account for daily spending at shops, restaurants, and to pay for goods and services online.

To use your card to pay for items on the high street with the money in your current account, you'll either need to use chip and pin at checkout or use contactless payment, where you tap your card against a card reader.

To pay for items online, you'll have to enter your card details, which include your card number, expiry date, CVC security code, and sometimes your issue date, depending on the bank.

Setting up direct debits

A direct debit is an instruction from you to your bank that authorises businesses to collect money from your account.

You'll usually set up a direct debit for businesses where you use a regular service, like subscription services, to pay your council tax or pay for recurring bills, like energy ,water bills or car insurance.

You'll need to contact the business you want to set up a direct debit with and provide them with your account information to set one up.

Build interest

Some current accounts will give you interest on the amount of money you have stored in your account. This feature isn’t available on all current accounts and may require a fee and minimum income to open these types of accounts. Top current accounts can offer an interest rate of 5% AER, but the current average ranges between 0.5-2%.

Obtain an overdraft

Many current accounts offer overdrafts. This is an amount you can borrow from the bank. The amount of overdraft will depend on your credit score, and you'll be charged interest on what you owe if you don't clear your overdraft before the end of the month. Overdrafts can be some of the most expensive forms of borrowing and shouldn’t be used as a long term form of borrowing.

How many types of current accounts are there?

There are multiple types of current accounts you can get, and each will have its benefits. To choose the best current account, you need to think about your current situation and compare current accounts online to make sure you get the right one for you.

1. Basic current account

A basic current account offers no additional features and may even have some restrictions. It's designed to be an account for managing your income and spending. Because of the lack of additional features, these types of accounts are usually free to open and come with minimal or no fees.

You won't be able to arrange an overdraft, and there are no rewards, but most should offer you a debit card.

This type of account is perfect for those who can't get accepted by others because of no or a low credit score.

2. Standard current account

Not to be confused with a basic current account, a standard current account provides all the features you need to manage your money effectively.

With a standard current account, you'll be able to apply for an overdraft and may have increased cash withdrawal limits compared to basic current accounts.

A credit check will be done when you apply for an everyday current account, which will determine how much overdraft you can get access to.

When opening a current account with an overdraft facility, each time you use your overdraft, you'll likely have to pay a fee and may need to pay interest on any money you’ve borrowed. Overdraft interest rates can range from 25-40% EAR, which makes them an expensive way to borrow money.

3. Joint current account

As well as being able to take out individual current accounts, you're also able to apply for a joint current account which can be shared between multiple people, making it pretty different from a personal current account.

All people registered to a joint current account can withdraw money, deposit money, set up direct debits, and all the other functionality a regular current account has.

These types of accounts are perfect for couples who share their money, and everyone registered to a joint account should be issued their own individual card.

Joint current accounts can also be helpful for people in shared living and need to spilt paying household bills.

4. Child current account

A current account for children is designed for kids between 11 and 17. These accounts come with a lot more restrictions to help your child better manage their money.

They're a great way to help teach your child how to be more financially independent.

5. Student current account

These are current accounts that can only be created for college and university students in full-time education. They usually have increased interest-free overdrafts to help students with their expenses. Student current accounts usually come with some added benefits and perks, such as discounts when used at certain restaurants, shops and bars.

6. High-interest current account

Current accounts with high interest help you to earn money on the balanc eyou have in the account. These accounts will have some requirements you'll have to meet to be eligible to open one.

You'll usually have to have a minimum income you pay into the account each month, and you're also likely to have to pay a fee each month too.

The amount of interest you can earn is between 0.5-2% AER, and this is often capped at around £2,000.

7. Rewards current account

A rewards current account will give you benefits for constantly using the account. Some of these offers may include cashback on your spending, a fixed lump sum cash reward, or access to exclusive discounts.

You'll usually have to pay a fee to use these types of current accounts, with the best banks for current accounts having the cheapest fees.

8. Packaged current account

These current accounts usually come packaged with other perks and services, such as insurance from the same provider. Using these accounts should give you more rewards, but you'll have to pay a regular fee.

What details do I need to open a current account?

To apply for a current account, you'll need to provide the following information:

  • Your name
  • Your date of birth
  • Your nationality
  • Your address and any previous addresses up to a certain date
  • Your marital status
  • Contact details

To ensure the details you've provided are accurate, the current account provider will also ask for proof of ID and address.

Your proof of ID can be either a valid passport, driving licence, or national identity card. You may not be able to open a current account if you don't have any of these documents.

For your proof of address, you can use any formal document that includes your address in it, with common ones being:

  • A utility bill from the last 3 months
  • A council tax bill
  • A rental or mortgage contract
  • A bank statement
  • A benefits or state pension letter

Who can open a current account?

Any adult in the UK with a permanent address should be able to open a current account.

You have to have a regular permanent address that you live in to get a current account, and you will also need to be able to prove this.

Those under 18 can still get certain current accounts, but these will have restrictions and limitations. Although, some banks may allow 16-year-olds to open a regular current account.

Depending on the type of current account you're applying for, you will also need a good credit score and/or a certain income level to open a current account.

If you're applying for a current account that offers rewards, has high interest, or has an overdraft facility, your credit rating will be checked to make sure you're eligible. You may also have to prove your income to be able to open a current account.

When should I open a current account?

You should open a new current account as soon as you can because it can help you to manage your money and give you access to multiple features.

For example, having a debit card can be useful, because it eliminates the need to carry cash to make purchases and pay for goods.

It's also a good idea to get a current account when you start earning a regular income because your employer will ask you to provide your bank account details to pay in your wages.

Although not being as effective as other credit products at building your credit score, current accounts can help, especially if you're paying bills with it. Plus, if you have a current account with an overdraft and avoid going using it, that can demonstrate you're reliable to lenders.

Will banks charge for current accounts?

Banks may charge you for having a current account with them, depending on the type you have.

If you have a current account that offers rewards, high-interest, or packaged deals, you'll likely have to pay a monthly fee to keep them open, ranging from £10-£25.

The other scenario where a bank may charge for a current account is if you've entered your overdraft.

Each time you use your overdraft, your bank may charge you a fee, and this ranges a lot between current account providers. If your overdrawn balance isn't paid off by the end of a month, then interest will also be charged that you'll have to pay to the bank in addition to the amount you've overdrawn.

On some accounts, you may also be charged a daily fee for entering your overdraft, meaning that the costs can mount up quickly.

This interest can range from 25%-40% EAR.

If you’re using a standard current account with no overdraft or no rewards, there shouldn’t be any fees.

How much money can I have in my current account?

The majority of current accounts will not have a maximum amount you can keep in them, however, the more money you have in your current account, the less likely it is to be protected.

All licensed banks should have FSCS protection on your accounts. This is a scheme that allows you compensation of up to £85,000 for each account or £170,000 for a joint account if your current account provider goes bust.

If you have more than this limit, whatever you have stored over this threshold could be lost if the bank ceases to exist.

This means if you store more than these amounts in your current accounts, you do so at your own risk.

What are the disadvantages of a current account?

Overall, current accounts are a good way to manage your money. But, there are a few disadvantages to think about when using them.

Not the most effective at building credit

Compared to other credit products like credit cards, loans and mortgages, current accounts won’t impact your credit rating as much because when you use them, you're not borrowing and paying back credit, unless you’re using an arranged overdraft facility.

If you’re paying for your utility bills via your current account, then that does contribute a little to your credit score, because these businesses technically credit you a service before you pay for it. Although, on the whole, they're not going to be as effective as using other credit products.

If you only use a current account to purchase goods and services, you may struggle to build a good enough credit score to take out loans or mortgages in the future.

Overdrawn fees and interest can be high

If your current account charges you each time you go into your overdraft and doesn't include an interest-free buffer zone, then paying back your overdraft can be expensive.

The interest you have to pay is high, ranging between 25-40% EAR depending on the current account.

If you're someone who constantly uses your overdraft, these fees and interest can mount up and could cause you to accumulate debts you’ll find difficult to pay back.

Account fees may outweigh the benefits

If you're planning on getting a reward or packaged current account, you'll need to consider if the rewards are worth the fee you'll have to pay.

Some rewards and current account deals may not be something you're likely to use often, meaning you're paying for a benefit that may be useless to you.

Always consider the benefits to see if they align with your lifestyle.

The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.

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Frequently asked questions

Can I have more than one current account?

You can have more than one current account, provided it's across different providers. With most banks, you won't be able to have more than one current account with a single bank. 

Having more than one current account could be beneficial in certain situations. For example, if you're using current accounts to earn interest on savings, but you’ll only earn interest on a certain amount, you can put any additional money into another current account to start earning interest on that amount as well.

If you’re a regular traveller, other current accounts are designed to be used while you’re abroad, meaning you won’t have to pay fees for international transactions.

What is the current account switch service?

Switching current accounts has become a more common occurrence recently, especially because many banks offer incentives like £250 to switch. 

The current account switch service is a scheme many registered banks are subscribed to where they'll automatically switch over your details, income and outgoings to your new account, and set up your direct debits and arrange for your salary to be paid into it. 

This means the switch should take no longer than seven days and is designed to make switching accounts less hassle for you, by taking away a lot of the admin.

What is FSCS protection?

FSCS is a scheme put in place to protect you if the current account provider you use was to go bust. The Financial Services Compensation Scheme will ensure you'll be able to receive £85,000 per individual account or £170,000 if it's a joint account (an account used by more than one person.)

This scheme covers banking groups that have a license; however, be cautious that multiple banks and brands may only be under one license. 

Suppose the HSBC group - which only has one license across its brands - was to go bust, and you have a current account with HSBC and First Direct, (their two UK brands). In that case, you'll only get £85,000 protection across the two accounts, not £85,000 for each.  

FSCS can also be used to claim from pension providers, bad mortgage advice, and PPI claims.

How do I deposit money into my current account?

To deposit money into your current account, you'll have to make a bank transfer. The most common way to complete a bank transfer is via your bank's mobile app or website. 

To deposit money into your account, you'll need to input your eight-digit account number and six-digit sort code, along with the name you registered the account under. The combination of your sort code and account number should be unique to you and is what is used by the bank to know which account to add money to. 

You then need to input the amount of money you want to deposit. Depositing money into your current account should be instant, but it could take up to three working days. If you want to deposit cash, you can do this at your local bank branch over the counter or use a self-service machine.

Can I withdraw cash from my current account?

Yes, when you open a current account, you'll be issued a debit card which you can use to withdraw cash from a cash machine. 

When using cash machines provided by banks, you shouldn't be charged to withdraw cash, although some independent cash machines like those found in corner shops may charge a fee.

You'll also likely have to pay a withdrawal fee when using your debit card to withdraw cash when you’re abroad. 

To withdraw cash from your current account, you'll have to enter a four-digit security pin you'll be provided with when you first get your debit card. 

Some merchants may also offer cashback when you use your card to pay, which is where they add the amount you want to withdraw to the cost of your purchase to then give you that amount in cash.  

How do banks make money from current accounts?

Banks and providers have a couple of ways of making money from current accounts. 

The first is overdraft fees. If your current account has an overdraft, you'll usually be charged a fee each time you enter it. If you fail to pay back your overdraft, you'll be charged interest on any outstanding amount. This interest can range between 20-40% EAR. 

If you don’t set up an arranged overdraft, banks may charge you a daily fee for using one. 

Banks also make money off packaged and reward accounts that require a monthly or annual fee to open. This monthly fee ranges from £10-£20. 

Some banks will give you a current account in the hope you’ll take out other products with them in the future, like credit cards, loans and mortgages, which is how they’ll make money off you longer term.