The Right Current Account For You

A current account is the most common type of financial product: Most people have one. If you're like the majority of account owners, you didn't give much thought to what you want from a current account before signing up for one, which means your current account may be unsuitable for your needs. For example, if you frequently go overdrawn, you don't want an account with expensive overdraft charges, or if your account is usually in credit you don't want one with a poor rate of interest on balances.

The good news is that if you're not happy with your account - for whatever reason - it is easier than ever to switch. The Internet has opened up competition in the current account market with scores of new providers offering attractive products. And new rules mean that banks have to co-operate within days rather than weeks if you express a desire to move an account. In this chapter we show you how to make sure you find the best current account for your particular needs.

What is a current account?

In a nutshell, it is a bank account with a financial institution that provides personal finance related services. It will enable you to make payments to other people or institutions as well as provide you with somewhere to deposit your earning or income. There are also bank accounts for small businesses offering similar services.

How Current Accounts Work

Unless you are happy to deal in cash all the time, you need a current account, which is where your wages are usually paid by your employer so that you can pay bills, your rent or mortgage, and withdraw cash for everyday spending. Banks, building societies, and even supermarkets offer these.

Most people have their salary, state benefits, and tax credits (where applicable) paid into their current account. You can arrange to pay your bills, mortgage, rent, and so on directly from your account through one of two methods:

1) A standing order is an instruction you give your bank to pay a fixed amount, usually each month, to a particular person or supplier. The amount can be changed only if you give instructions to your bank.

2) A direct debit is an instruction to pay a particular person or supplier an amount that can fluctuate. The person or supplier informs your bank how much it is taking out of your account that particular month (after informing you).

Most current accounts come with a cash card so you can withdraw money from automated teller machines (ATMs). This card usually doubles up as a debit card so you can pay for goods in shops with the money debited from your account - usually the next day. Most current accounts also offer a cheque book. If you are over 18 you can also apply for an overdraft.

Noting interest and taxes

The interest you receive on the balance in your current account is subject to income tax and usually paid monthly. Interest on some accounts is calculated annually.

If you don't have a job or are on a low income, you don't have to pay tax on the interest you earn. However, you need to inform your bank or building society of your circumstances by filling out form R85, which is available from your current account provider or local tax office.

Considering safety first

If you aren't happy with the service you've received from your bank or building society, complain first to the institution concerned. If the problem isn't rectified, contact the Financial Ombudsman Service, which was set up to settle disputes between customers and financial firms, on 0845 080 1800.

The main risk to your money is the rate of inflation, which indicates how much the cost of living is going up. So when the rate of inflation is higher than the interest you are earning on your account, you are losing money in real terms. For example, if inflation is at 2 per cent and you are earning 0.1 per cent interest on your current account, you are losing money.

This is why it is worth comparing current accounts [http://www.seek4finance.co.uk/banking/current-accounts] for the best rate of interest and ensuring you don't keep huge sums of money sitting in your current account. Move it to a savings account paying a better rate of interest instead.

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