Current accounts

How does it work

Current accounts allow you to access your money instantly. You can pay your money in and out via a variety of methods, such as in branches, directly over the phone, over the internet or even at your local Post Office.

Once you've opened your account, you will usually receive either postal statements or be able to view your account details online. Statements show you what money has come in, and gone out of your account usually for the last month and if you've incurred any charges.  You can usually have your salary or any benefits payments paid directly into your account.

Some current accounts also offer interest paid on money held in your account, although the rates are usually low, you may receive a higher interest rate in a savings account.

 The different types of account available:

• A basic cash account is a simple straightforward account that enables you to deposit and withdraw money easily. These accounts usually offer a cash card to get money out at a Cash machine or in a branch. You can only make a withdrawl if you have money in your account. Basic bank accounts don't offer an overdraft (see below for info on overdrafts).

• A standard bank account will usually offer you a chequebook, so you can make payments to people or organisations, and a cash card, so you can withdraw cash from a Cash machine or a branch. You can also arrange an overdraft on these types of accounts, but this is usually subject to a credit check.

• A packaged current account offers you all the features of a standard current account with some extra benefits on top. This can include anything from travel insurance to car breakdown cover. You can usually save quite a lot of money depending on which extra features you use, though do remember these accounts may cost you anything from £5 - £20 per month.

How overdrafts work

When withdrawals from a current account exceed the available balance, then that excess is described as an overdraft. In other words, the account now has a negative balance, which is known as being overdrawn.  Some current accounts do offer an overdraft facility as part of their standard account features, but this arrangement will usually have formal guidelines and may include charges.

There are two types of overdraft: A formal overdraft, is where you will arrange with your bank to have an overdraft on your account. You may get charged, but this depends on the bank and the rates can vary. An informal overdraft, is when you go overdrawn without asking or letting your bank know. The charge for this may be higher than on a formal overdraft, so you will need to be aware that going over any agreed limits can be expensive. It may also result in declined debit card transactions, unpaid cheques or returned/cancelled Direct Debits and Standing Orders.

See our guide on day to day money for more information on current accounts and everyday banking.

The key points

• You will be able to put money in and get your money out whenever you need it.
• It will help you manage your money on a day-to-day basis.
• If you have a current account you could have the money you earn from your employer paid directly into it. You can also have benefits and other payments paid into it.
• You can open a current account just in your name, or if you wish you can open it in joint names (so you and your partner can both have access to the account.
• When opening a current account you will need to prove your identity, for example, the bank or building society you are looking to open the account with may want to see your passport and some proof of your address, such as a bill from a utility company.

Glossary

Your everyday banking may involve some unfamiliar words and phrases. Here's a quick guide to some of the most common ones.

AER

Stands for annual equivalent rate. This is the rate that is generally quoted as interest paid on savings and investments so that you can compare accounts. It is used to demonstrate what your interest return would be if the interest was compounded  (adding interest on to the balance then paying interest on the new higher balance) and paid annually instead of monthly (or any other period).

ATM

This is an 'Automated Teller Machine' often referred to as a cash machine or 'hole in the wall'. You can access your money from an ATM at any time of the day. They also provide you with other basic services, such as balance enquiries.

Balance

This relates to the amount of money in your bank account.

Cheque

A cheque instructs your bank to pay a specific amount of money from your account to another person or organisation. You can also deposit cheques from other people into your account.

Credit

A payment into your account.

Debit

A payment taken from your account.

Debt

A specific amount of money that you owe to a person or company.

Deposit

Money you put into your account.

Direct debit

An instruction from you to your bank or building society allowing someone or an organisation to take money from your account. The amount of money taken can fluctuate, but you must be told the amounts and dates beforehand. You can use direct debits to pay bills automatically from your account on a regular basis.

Gross

The way interest is paid before any deductions e.g. tax / fees.

Interest rate

The percentage rate that is paid on every £1 saved or borrowed with the bank.

Net

The amount of interest paid after deduction of income tax (or other fees).

Overdraft

An overdraft occurs when withdrawals from your current account exceed the available balance within that specific account. This leads to the account going into a negative balance. This is when you are said to be "overdrawn".

You can usually arrange a formal overdraft before you go overdrawn, this will mean that interest is normally charged at an agreed rate. If the balance exceeds the agreed terms, then fees may be charged and higher interest rate might apply.

Payee

When a cheque is made out, the person or organisation that it is made out to is the payee.

PIN

PIN stands for Personal Identification Number and it is the four digit security number you will use when you are taking out money at an ATM or making transactions using your debit card.

Sort code

This is a six-digit number that forms part of your account details and identifies a specific branch of the bank.

Standing Order

A standing order can be set up if you want to transfer a specific sum on a regular basis to another account. This can be used to make regular savings from a current account to a savings account.

Useful Links

Here are some useful links we find helpful and thought you might feel the same.

• http://www.direct.gov.uk - Easy access to the public services you use and the information you need to use them, delivered by the UK government.
• http://www.fsa.gov.uk - The Financial Service Authority (FSA) is an independent body that regulates the financial services industry in the UK.
• http://www.fscs.org.uk - The Financial Services Compensation Scheme (FSCS) is a free financial compensation scheme in the event of the failure of authorised firms.
• http://www.bba.org.uk - The British Bankers' Association (BBA) is the voice of the banking industry for all banks that operate within the UK.
• http://www.financial-ombudsman.org.uk - The Financial Ombudsman Service (FOS) look at complaints about most financial matters including: banking, insurance, mortgages, pensions, savings and investments.
• http://www.moneymadeclear.fsa.gov.uk - Money Made Clear prides itself on: No selling. No jargon. Just the facts. This is part of the Financial Services Authority (FSA)
• https://www.bettermoneyskills.com - Better Money Skills Is for everyone who wants to manage their money better.
• Money Security
• Internet banking