The vast majority of banks and building societies offer a standard current account, but most also offer additional choices such as savings accounts, packaged accounts and offset accounts.
As a result, modern banking customers face a plethora of choice, with a huge number of lenders all offering a wide range of accounts, which can complicate things if you don’t know what you should be looking for.
Most people have a current account to look after their money on a daily basis. It is this account that receives income and pays bills.
Current accounts give quick and easy access to your funds, and usually have a debit card and chequebook. They can also have an overdraft attached, with most of these charging interest.
They tend not to be a great choice for those looking for a place to save money, because they have low interest rates.
High interest accounts
High interest accounts offer the same ease of everyday access as current accounts, but have higher rates of interest.
Unfortunately, this increased interest rate will only be received when certain conditions are met, with these sometimes including minimum monthly deposits or an annual fee. It is therefore important to thoroughly check the terms and conditions of such accounts beforehand.
Be sure to pay attention to how long the increased interest rate lasts too, as it is often just an introductory offer.
Basic accounts are designed for those who want the absolute minimum from their bank, or have a poor credit history. Customers pay into the bank account, and can withdraw money using a cash card or by visiting a bank’s branch.
Basic accounts do not allow chequebooks or overdrafts, so are perfect for those who wish to control their spending.
Savings accounts are used by customers looking to save money for the future. They generally require money to be paid in each month and will have higher interest rates than current accounts, although this comes at the cost of flexibility.
Some banks also offer an Individual Savings Account (ISA) which allows for tax-free interest.
Both savings accounts and ISAs usually include certain restrictions, but some provide instant access at the cost of interest rates.
Some bank accounts will offer perks in return for a monthly fee. Examples of this include insurance for phones and cars, or a number of entertainment-related choices such as airport lounge access.
These accounts may also offer better rates on other financial products such as mortgages or loans.
An offset account links your mortgage and your savings account, with the amount generating interest on the mortgage reduced by the amount in the account.
So if have an interest-only mortgage of £200,000 and have savings in your offset account of £50,000, you pay interest on £150,000.
However if you spend £10,000 in the next month you will have reduced your offset account to £40,000 and pay interest on £160,000.
These accounts are becoming more popular but require good money management skills to make sure that you’re not wasting your savings.