Current account - Standard account for everyday use.
Savings account - Less flexible, higher interest account for money we can afford to put aside.
Student account - Only available to registered students and likely to offer reduced interest charges on overdrafts and other incentives.
Business account - Suitable for regular transactions regardless of the size of your business.
While the specifics will vary depending on the requirement of your account, the standard services would include the following options:
- Interest on balance
- Overdraft facility
- Internet/telephone banking
- Cash card/Debit card/Cheque card/Credit card
- Direct debits & standing orders
- Automatic transfers national & international
So how on earth do we decide?
Some of the key criteria that you should consider are detailed below. You need to check out the terms of available bank accounts and determine which one is best suited to your needs. A great site for comparing accounts is moneysupermarket.com . Check it out, bearing in mind the following:
(i) Bank Interest
Ever changing interest rates can have a huge impact on your bank balance. If you're looking to build up some savings, you want an account that offers the highest rate of interest possible. One of the pay-offs of a high interest savings account however could be flexibility in terms of withdrawals & payments, so consider how you intend to use the account day to day.
If there's a chance you'll need to rely on an overdraft facility, you must check the interest rate you'll be charged as it will always be higher than the rate the bank would ever pay you on your savings.
The rates a bank account will quote are AER for positive bank balances and APR for balances in the red (see definitions below).
(ii) Overdraft facility
An overdraft is a very handy facility and is a cheap option in terms of short-term, low level borrowings. However, it can also become a slippery slope, and it's often very difficult to get back into a positive balance once you become accustomed to spending the bank's money! Take control of the limit set on your account. Set it to a realistic level that you can control, try & treat it as an emergency money pot.
Be very careful not to exceed your limit. Bank charges are particularly harsh on borrowers pushing their luck, in the region of £30 (EUR50) a transaction.
(iii) Bank charges
Charges are often a flat rate amount. You could be subject to charges on withdrawals, electronic payments and breaches of overdraft facilities. Some banks will simply charge a monthly amount as a service fee, so check the details and consider which account will result in minimal fees for you.
(iv) Cash card/Debit card/Cheque card/Credit card
A cash card allows you to draw money from Automated Teller Machines (ATMs or cash machines). Many banks set a daily limit as to how much you can take out, even if your account contains funds.
A debit card allows you to pay for goods at the point of purchase, providing there's money in your current account. Some shops may also provide 'cashback' when making your purchase.
A cheque guarantee card is used to back up any cheque you write - usually up to the value of £50-£100 (EUR 70-EUR 130).
A credit card allows you to pay for things on credit ie. buy now, pay later. You will receive a seperate statement for this facility and need to arrange repayment from your current account regularly as you will pay for the pleasure, as you would if you took out a loan.
(v) Accessibility
Check out how many cash points there are in your area and the availability of customer support services. There's nothing worse than feeling abandoned by your service provider.
(vi) Electronic banking
Internet banking is the way to go if you actively use your account. You can keep a close eye on your balance and the transactions being processed, and arrange for electronic payments including direct debits (regular payments) and standing orders (fixed regular payments).
Most banking is virtual these days and you rarely actually need to carry cash when you can do it all on the Internet or with bank cards.
Warning
Watch out for promotional offers, especially on business bank accounts. They are designed to attract custom and you need to check what the true terms will be after the promotions end.
Definitions
AER - Annual Equivalent Rate
The interest received on a savings account is referred to as the Annual Equivalent Rate (AER). Any interest rate quoted as an AER will only be accurate if you do not withdraw money from your account during the year in question. The reason for this is that the AER illustrates what the interest would be if the interest was paid and compounded (added to the interest from previous payouts). Therefore, any withdrawals that you make from the account can affect the rate you will receive at the end of the year.
Don't forget that if you're a UK taxpayer you will also need to deduct 20% from any interest calculation as the interest you earn is a taxable source of income. Most banks and building societies will quote the interest a gross amount (before tax is taken), and will pay the interest into your account as a net amount (after tax is taken).
APR - Annual Percentage Rate
Any borrowings that you may have will charge you interest, instead of paying you interest. The interest that you are expected to pay is often referred to as the Annual Percentage Rate (APR). The APR is the rate of interest that a lender is required by law to quote, and it represents the true cost of the borrowing. If you are looking to take out any form of borrowing, then you should try and get the lowest APR you can, as this will be the total amount of interest that you are expected to repay over the course of your agreement.
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