14th November 2018
It’s often said that all banks are the same but, if you do a little bit of digging, you will find that there are dozens of different account types, each with different features and cost structures that will suit one individual but not be right for another.
These are by far the most common types of accounts and most people would find it virtually impossible to function without one. We use them to pay our bills, pay in our salary and benefits and to make all of our regular payments. Most are free to use if you stay in credit and, paying utility bills by direct debit, could mean that you get a discount on those bills. So, it all sounds like a marriage made in heaven.
However, if you start to go overdrawn, costs can mount up. According to the government’s Money Advice Service, the cost of an unauthorised overdraft can be from £5 to £35, or more, a month. Daily it could be between £1 - £6 or more. Clearly, this can be an extremely expensive way of borrowing. On top of that, if you don’t have enough in your account and a direct debit gets bounced, it can cost up to £25 a time.
If you can manage to stay in credit, some accounts will offer you cash back of up to 2% on certain transactions like household direct debits. Typically, these accounts will carry a monthly charge so it is important to work out whether the cost is worth the benefit.
If you find you have got some spare cash, or are saving up for something, there are plenty of savings accounts available. There is a range of tax-free accounts but rules on how much you can save can be complicated, so it makes good sense to compare different products and providers. Some, like those offered by National Savings and Investments, are government backed and others are provided by banks and building societies.
At present, interest rates are generally very low, so the returns you get are not likely to be life-changing, but some sort of return is better than none.
You will need to be careful what sort of account you choose. A standard instant access account gives you the greatest flexibility but will probably pay the lowest interest. At the moment, the top rate is around 1.5% but to get that, you might need to start with more than £1,000.
You can get a better rate, currently up to about 2.7% if you can tie your money up for some time. But you have to be very careful about the conditions in case you want to take your cash out early. In some cases, you will just lose interest but in others the account might be locked until maturity.
Also available are regular savings accounts but usually you have to commit to saving a set sum each month and if you miss your payment, it can cost you interest or even lead to the account being closed.
We strongly recommend that you do your research - talk to friends, visit comparison sites and read the literature carefully.