Current Accounts Guide
Current Accounts Charges & AER
Current Accounts Types
Anyone looking to open a current account these days must choose from a bewildering range of products and providers - all professing to offer that little bit extra to make them stand out from the crowd.
The majority of these accounts will fall into one of the following categories:
Standard current accounts
- aimed at a broad cross-section of the population, the standard
current accounts offer essential everyday banking services - cash card,
direct debit, cheque book, standing orders and overdraft facilities.
- aimed at those with no previous credit or banking history. Services
are typically the same as provided by a standard account -- but without
a cheque guarantee card or overdraft facility to ensure that you don't
spend more than you actually own.
- Student & young persons' accounts - typical characteristics include free overdraft facilities and gifts for new account holders. Whilst the above accounts all provide the same core services, the following offer special facilities for which they usually charge additional fees:
- Premier accounts - aimed at high earners, typically with an annual salary of at least £45-£75k and/ or holding a minimum £100k of investible/ liquid assets. Alternative pre-conditions might include minimum savings or a mortgage with the bank in question - although some accounts still set no entry conditions at all. Premier accounts will usually offer higher 'fee free' and 'interest free' overdraft limits, allow larger ATM withdrawals and guarantee bigger cheques. In addition, these accounts pay higher interest rates on your savings and charge lower rates on your debts. These accounts also offer additional products and services - such as personal advisers to assist in managing your investments, pension planning, taxes, etc. And even discounts on your Internet broadband!
Foreign Currency Accounts
- aimed at people who frequently make and receive payments in a foreign
currency. An instant access account in Dollars or Euros helps you to
avoid paying foreign exchange commission and minimises the impact of
exchange rate fluctuations. Foreign currency accounts usually come with
additional fees or conditions attached - such as a minimum balance
requirement - and you may have to forego standard account features such
as standing orders.
Offshore Accounts - these accounts are aimed mainly at UK nationals living outside the UK and usually require a hefty minimum balance.
|Current Accounts Charges & AER||Top|
The banks are well known for their vast annual profits and it should come as no surprise that there are a wide variety of current account charges, depending upon the type of account:
- you will pay less interest on an authorised overdraft (i.e. one that
stays within the agreed limits) than on an unauthorised overdraft that
exceeds the agreed limit. Interest ranges from some 5% per annum on an
agreed overdraft to 30% on an unauthorised overdraft.
- the banks will charge you for CHAPS payments (same day electronic
transfers); overseas cash withdrawals; duplicate statements and any
number of additional services. Charges range from some £5 for a
duplicate statement to £35 for a CHAPS payment.
- in addition to the service charges that you might expect, banks also
levy a range of punitive fees on the unwary for such crimes as
exceeding an agreed overdraft limit, "bouncing" a cheque or failing to
have sufficient funds to pay a standing order or Direct Debit. And
even, in the case of some premium and foreign currency accounts,
falling below a minimum balance.
- Annual charges - no longer applicable to most standard current accounts as long as you are in credit, but often levied on the premium and foreign currency accounts - to the tune of around £20 per month.
Banks usually calculate the interest due on your account daily, but vary in how often they will actually pay this interest - it can be monthly, quarterly, half-yearly or at the end of a full year.
A Gross Interest Rate ignores the interest you earn on the cash from your interest payments - whilst the Annual Equivalent Rate includes compound interest in the calculation and allows you to compare the interest earned from different accounts regardless of their interest payment schedule.
AER is purely a notional rate - it assumes that your initial deposit remains unchanged and that you receive fixed interest, regardless of market fluctuations. It also ignores charges and fees. However, the AER is highly useful – and essential when comparison shopping for accounts.