This article summarises some key tips and tricks on how to get the most out of your current accounts. For more information on this & other financial topics, we highly recommend checking out our Finance Homepage.
What is a current account?
A current account is a bank account that is used for day-to-day management of money as a replacement for carrying cash. Most people have a current account to receive their salary, for benefits & bursaries as well as to pay bills and subscriptions. Many current accounts offer planned overdrafts. These are short term loans to cover cash shortfalls. In Student and Graduate bank accounts, this overdraft is usually 0%. However, most overdraft facilities tend to have quite high interest rates which become even higher when you enter an unplanned overdraft.
Banks now have a legal duty to check the identity of anyone opening a bank account, therefore, it has become more complex to open a bank account.
Types of Bank Accounts
There are several different types of current accounts, of which I’ll discuss the following six:
- Basic Current Account
- Student Current Account
- Graduate Current Account
- High interest Current Account
- Cashback/rewards Current Account
- Packaged Current Account
Basic Current Account
These accounts are free to use, do not tend to have any perks or offers attached to them and are used for day-to-day money management. All current accounts will come with a debit card and most highstreet and online banks now function via online banking. Many have their own apps and manage most issues and admin this way.
Student Current Account
This is important for all our medical students. Student current accounts will be very helpful for you as they offer quite a sizeable overdraft with no fee (0%) for the duration of your course. Many have fantastic joining offers, such as a railcard or amazon vouchers, so it’s worth shopping around. It is important to sort out your student bank account as early as possible after you receive your unconditional offer from University. Most banks do not let you open a student bank account after you have completed your first year of study so don’t delay. The biggest perk here is your free overdraft. It means you can have a helping hand with your finances without incurring massive fees/penalties and it helps you build a credit score if you can stay out of it as much as possible.
A pitfall is many people view the overdraft as “free money” and it doesn’t really sink in that they will have to pay this money back when they finish their course. Some banks offer a graduate account (see below) to give you a phased reduction in overdraft to help you pay it back, but most expect the overdraft to be settled as soon as you are no longer a student. You will most commonly be moved onto a basic bank account where your overdraft balance will attract an interest charge (around 39%) until it is paid off. Along with entering the professional world with debt, the added interest is a bigger burden to an already stressful time.
- Get a student account as soon as you have your unconditional offer for university
- Stay out of the overdraft as much as you can and treat it as a safety net
Graduate Current Account
A bank account for graduates who have just graduated within the last three years from University. Unlike Student Accounts above, you do not have to apply for a graduate account immediately, though I strongly advise that you do! Graduate accounts provide a 0% overdraft extension to your existing student overdraft. This can help you pay off lingering debt from your University days. Some will have the same limit (say £2,000) for 3 years at 0%. Others will have a reducing limit (say £3,000 in year 1, £2000 in year 2 and £1000 in year 3) at 0% to help you slowly pay off the overdraft balance.
Some accounts act as a transition to a basic current account and may offer an “unarranged” overdraft that attracts relatively high interest rates. As much as possible, use this chance to pay off your overdraft, rather than accummulating more debt.
Many come with some additional perks such as access to exclusive postgraduate loans (steer clear unless you have a guaranteed income), cashback and interest on in-credit balances. It is worth researching these accounts as you near graduation. You will need your Degree Certificate to apply for these accounts and some will not let you switch to another graduate account once you have joined them.
- Excellent opportunity to pay off overdraft balance accumulated whilst studying
- Conversely, can be a slippery slope to more debt if you don’t make an active effort to pay off the overdraft rather than use it as an additional money source
High interest Current Account
This bank account offers a small interest payment for keeping your bank account in credit at a particular balance, usually £2,000. The downside of this is that there is no interest payment for balances higher than the limit and if you dip below the minimum balance, you lose out on the interest payment. Current interest rates are too low for this to be a lucrative option compared to some of the other types of accounts so it is worth shopping around and doing some quick calculations to see whether your £2000 is better off being paid into a savings account, such as a tax-free ISA.
Cashback/rewards Current Account
Santander 1-2-3 is an example of this type of account that pays different levels of cashback based on the type of bills that are paid out of your account. Some banks charge a fee to access this account so it is strongly advised that you take the time to calculate how much cashback you are likely to make in comparison to the fee being charged. There can also be quite stringent rules to make sure you receive your cashback/rewards such as a minimum in-credit balance, a certain amount of money being paid in each month and a certain number or type of bill(s) being paid out each month.
Packaged Current Account
You can have access to travel insurance, contents and gadget cover and other types of insurance products via your current account for a fee. Always use a comparison website to check whether these products are cheaper or provide better cover if access individually compared to the account and if the fee is covered by how much you would be paying for the insurance separately. The convenience of having all your products in one place is an upside but getting the best deal can be quite straightforward by using a couple of price-comparison websites.
Always read the terms and conditions as they can be different from a generic insurance product. It would be a shame to be paying the fee for the account and then finding you can’t actually use the products they offer due to your circumstances.
References and Useful Links
- Co-operative Bank
- Save the student
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