What is a Current Account?
A current account is a type of bank account to help you manage your everyday money and expenses. This can include things like bills, wages, standing orders and direct debits. Read on for what you need to know about current accounts, including the different types and how to open a current account.
A current account is the centre of your financial world. It will be your hardest-working bank account, so make sure you understand what it can do and use it well.
What is a current account?
A current account is the place where you manage your day-to-day money. It can receive regular payments – so your wages, pension income, benefits or tax credits can all be paid into it.
At the same time, you can also make payments from your current account to pay bills, withdraw cash, set up direct debits or transfer money to friends and family.
A current account usually comes with a debit card, a chequebook and – depending on what type of current account you get – the option to have an overdraft. This allows you to borrow money from your bank for a short period if you run out of money. You should also be able to set up direct debits and standing orders to manage regular payments out of your account.
You can manage most current accounts in a branch, over the telephone, online or using an app on your smartphone. Some newer accounts may be entirely app-based or online. What kind of access you need will be important when choosing the right current account for you.
The difference between a current account and a savings account
They may both be bank accounts but there are big differences between a current account and a savings account.
Imagine a current account as being like a motorway. Your money can travel swiftly through a current account. For example, your wages come in from your employer and can then travel on to pay a bill, buy a new coat or simply become cash in your pocket.
By contrast, a savings account is like a cul-de-sac – there is only one way in and one way out. You put money in, and it sits there, hopefully earning interest, until you withdraw it again, directly from the account.
Because current accounts and savings accounts have such different uses, they don’t come with the same facilities. While a current account comes with a debit card, chequebook and you can set up direct debits and standing orders, a savings account, by contrast, may simply have an account number and sort code so you can transfer money in and out.
To encourage you to put money aside, a savings account should also have a higher rate of interest than a current account.
The different types of current accounts
There are several different types of current accounts to choose from. Which one is right for you will depend on your own personal situation and what you need from your account.
Standard current account
This is the most common current account. They provide you with a debit card, chequebook and, usually, the option to have an overdraft. These accounts typically are free, although a credit check may be required to open one.
Basic bank account
These basic bank accounts give you somewhere to receive your wages or benefits and the ability to pay your bills, but you won’t get an overdraft or chequebook. They can be a good option for people who are not eligible for a standard current account because they don’t have a sufficient credit rating.
Also known as a premium account, this type of current account comes with a variety of extras in return for a monthly fee. You could get a better interest rate, various insurance policies (like travel or gadget cover), or cashback on your spending.
Reserved for people in higher education, these student accounts usually come with an interest-free overdraft and attractive perks such as a free railcard or gift cards.
These accounts introduce kids and teenagers to everyday banking. They are usually similar to basic bank accounts with a debit card but no credit facilities.
Am I eligible for a current account?
Every bank will have its own eligibility criteria but there are also some general requirements. To get a current account you must:
- be a UK resident.
- have a UK address.
- be aged 18 or over.
How to open a current account
Applying for a current account is a straightforward process. You should be able to apply in branch, by post, over the phone, online or via an app on your smartphone.
You’ll need to fill out the application form giving details of your address, employment status and agreeing to a credit check. Your potential bank or building society may carry out a credit check even if you aren’t going to have a credit facility – such as an overdraft – with your account. This is because they need to verify your address details to comply with anti-money laundering laws.
How many current accounts are you allowed?
There are around 73 million current accounts in the UK but we have an adult population of just over 50 million. So, plenty of people have more than one current account. For example, if you are in a couple or share your home with flatmates, you may have one account for your own spending and a joint account for household expenses. In fact, you can have as many as you want with as many different banks as you like – although some banks and building societies may limit how many you can have with them.
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Ruth is a freelance journalist with 15 years of experience writing for national newspapers, magazines and websites. Specialising in savings, investments, pensions and property. Read more