How to choose a bank account

The information in this guide was last updated on 26/02/2014

There are lots of different types of current account on the market, from ones that offer basic banking benefits to packaged accounts. The type you choose will depend on what you want from an account and the way you spend. You can see what’s out there on online comparison sites and bank and building society websites. But what should you be comparing? Read our top 10 things to look out for.

1. What comes as standard with the account?

Before you choose your account, find out what comes with it. A standard current account will usually provide:

  • a debit card 
  • an overdraft facility - subject to approval by the account provider (You must be over 18 years old for an overdraft facility)
  • a cheque book 
  • the facility to set up payments by Direct Debit and standing order

You can normally open a standard current account for free, and there aren’t usually any monthly fees. The simplest bank accounts are usually called ‘basic bank accounts’. These typically offer a debit card, Direct Debit and standing order facilities, but no overdraft, cheque book or other features. A basic bank account could be right for you if you’ve been turned down for other accounts on the basis of your income or a poor credit rating.

2. Does the account offer any additional services?

If you want more from your bank account than the standard range of features and services and you’re willing to pay for it, it might be worth looking at current accounts called ‘packaged bank accounts’. These accounts offer extra services which sometimes come with a monthly or annual fee. They might include things like:

  • travel insurance
  • breakdown cover
  • access to preferential savings rates

3. Does the current account pay interest?

If your current account is always in credit, you can capitalise on it by choosing an account that pays interest.

There are several interest-paying current accounts on the market, so you can shop around to find a competitive deal. There are likely to be conditions attached to using this type of account though, for example you may need to pay a certain amount into your account every month and interest may only be paid on a limited amount.

To see what interest you’ll earn over a year, look at the Annual Equivalent Rate (AER) to compare your options.

4. How do customers rate the service?

You don’t need to take the bank or building society’s word for how good their account is; look for comparison sites that show customer service or satisfaction ratings as well as giving basic facts about accounts. 

Jargon buster

AER shows what the interest rate would be if interest was paid and compounded (combined) once a year.

The APR is the total cost of a loan, credit card or mortgage taking into account all charges, including interest payments, arrangement fees etc. This can be used to compare the cost of different mortgages on offer from different lenders.

EAR is the compounded yearly interest rate applied to the amount you’ve spent and any interest, fees and charges applied to your account.

5. What are the overdraft arrangements?

If you sometimes need to borrow in the short term, you may want to look closely at the overdraft facility your bank account offers.

Arranged overdrafts are those agreed with your account provider in advance. These will be cheaper than going overdrawn without permission, which can incur large fees and also affect your credit rating.

To compare overdraft charges look at the Equivalent Annual Rate (EAR) and any other fees. The EAR shows how much borrowing would cost if you were overdrawn for a year. Also look at the limits for fee-free arranged overdrafts.

6. What fees will you pay?

You won’t usually pay any fees for a standard current account, but you may have to for packaged bank accounts (accounts which charge a consumer a monthly or annual fee) or for facilities like an overdraft. Monthly fees can seem quite small, but it makes sense to add them up to see if you could get the benefits cheaper elsewhere.

7. How can you manage your money?

Some banks and building societies offer accounts that can only be accessed by phone or online. This may not suit you if you want to be able to visit a branch. In that case, you’ll need to check that the bank or building society has a branch near you.

8. Does the bank or building society offer incentives for switching?

Many banks and building societies offer bonuses for switching to their current accounts. You might want to consider these, although it makes sense to weigh them up against the other things the account offers. 

9. Is the account easy to switch to?

Many people are wary of switching accounts because they worry about the hassle, but banks and building societies are making it easier for you to switch by doing things like moving your Direct Debits and standing orders for you. 

There is a new Current Account Switch Service which is an industry-wide scheme that makes switching a current account faster and easier. For the first time, the act of switching is backed by an industry-wide guarantee. It ensures a clear and consistent service so that anyone who wants to switch their provider can be confident about what will happen, and when.