Last Updated on November 13, 2021 by Melissa S.
This is a sponsored post in collaboration with HSBC.
In today’s world of online banking, money can be transferred seamlessly between different accounts in an instant within the same or even different banks. In fact, a 2020 survey suggests around 80% of UK adults have now transitioned to online banking.
When setting up a new current account or savings account, it’s therefore highly likely that most of us will do this online via our computer or mobile. It’s certainly a far cry from the days of having to personally visit the bank in order to open an account!
Although online banking makes the process infinitely more easy and accessible, it also means that the type of account you choose to set up may not be the most appropriate for your intended purpose.
It’s pretty likely that most of us know the general difference between current and savings accounts and their purpose. But what about the different types of current accounts and savings accounts that are available?
Knowing the differences and selecting the types of each account that are right for you can ensure your money is in the best possible place for your intended purpose.
What is a current account?
Put simply, a current account is for general day to day banking. This is where your salary can be paid into, direct debits can be set up, and payments can be sent and received. A debit card is a key feature of current accounts, allowing the customer to access their money via an ATM or bank, as well as being able to pay for goods via Chip and Pin or contactless payments.
Some people, including myself, have more than one current account so that they can manage their spending more effectively. For example, my salary is paid into my main current account, this is also the account from which my monthly fixed bills and direct debits are paid.
In order to separate bills from my non-fixed expenses such as groceries, petrol and personal spending money, I have a second current account. As these amounts can vary, budgeting and transferring a set monthly amount for these expenses helps me ensure I am staying on budget.
Being able to access this money instantly and without any penalties is crucial for me, so a savings account would obviously not be the right place for these funds. But what are the types of current account available, and how do they differ?
Types of current account
There are a number of different types of current account as follows:
Standard Current Account
This typically includes:
- A debit card for contactless and/or Chip and Pin payments;
- An overdraft facility – depending on your financial circumstances;
- A chequebook;
- A direct debit facility;
- A standing order facility.
Standard Current Accounts are typically free for all customers.
Current Account with Extras
In addition to all of the features of a standard current account, “extra” or “premium” current accounts might include access to services such as travel insurance, mobile phone insurance or a higher credit interest on savings accounts.
Typically, current accounts with extras charge a monthly fee to access these premium features, so they may not be suitable for everyone. However, if you are a regular user of some of the features included, it may prove better value to pay for the current account rather than travel insurance and mobile phone insurance separately, for example.
Basic Current Account
A basic current account, as the name suggests, offers only the basic features of a current account. You can add and withdraw money, but there is no overdraft facility or chequebook. Most basic current accounts do offer a debit card for transactions, but it may not have all of the features of regular debit cards, such as contactless payments.
Generally, a basic current account may be offered if a person does not qualify for a standard account due to age or credit history. It may also be suitable to be used as a second current account for non-fixed expenses as described above.
If you’re looking to open a bank account, HSBC have a range of current accounts as described to suit your needs.
What is a savings account?
A savings account is traditionally used for storing any extra money you have. They can earn interest, helping your money grow faster. The differences between the types of savings account available
Like current accounts, there are also a number of different types of savings accounts available. Selecting the one that’s right for you depends on a number of factors, such as your long term goal for the money you are paying in.
Different types of savings accounts
Regular Savings Accounts
Regular Savings Accounts offer you the opportunity to put away some money every month. They can generally be opened with a low deposit and can be set up so a monthly amount is transferred into your savings. They generally suit people who want to build up a steady stream of savings and do not need instant access to it, as withdrawing early could affect the interest rate.
As the name suggests, easy access savings accounts give you access to your money whenever you need it. This could be suitable for a short term savings goal or emergency fund to pay for unforeseen expenses. As a result, the interest rate offered on Easy Access savings does tend to be lower than other savings accounts.
This type of savings account requires you to notify the bank or provider every time you wish to make a withdrawal. This could be a great deterrent for those who want to stop being tempted from withdrawing their savings, but it is obviously not ideal for anyone who needs instant access to their funds.
A fixed rate savings account can offer a higher rate of interest on your savings, provided you can put your money away for a fixed period. They are similar to a regular savings accounts, but generally for larger sums of money so cannot be opened with a small deposit. Many fixed rate savings accounts offer flexibility on the length of time you wish to save.
Individual Savings Accounts (ISAs)
ISAs are a great way to earn tax free interest up to a fixed amount each year. The ISA allowance for the UK in 2021-22 is £20,000. Many ISAs can be opened from as little as £1, and they are a great way to earn tax free interest. Due to this, you are only permitted to open one ISA per tax year.