How to compare bank accounts

• What is the best bank account to have?
• What features might different current accounts have?
• What is a basic bank account?
• Will I be charged for using a current account?
• Can I open a new bank account online?
• What bank accounts are the safest?

What is the best bank account to have?

Finding the best bank account for your needs will depend on what you want it to do. A current account is probably the most popular type of personal account and will likely be the one you’re already most familiar with. They’re great for everyday banking, including withdrawing cash, depositing your salary and setting up standing orders and Direct Debits for bills, etc.

But in the current account category alone, there are so many options available that it’s worth being absolutely sure what you want from it, and what different benefits providers offer. Some will pay interest on your balance, offer cashback on your spending and many have an overdraft facility to dip into when you need it. Think hard, too, about how you’re most likely to use it. Online current accounts could suit you if you’re fine with mobile banking, but if you’re a little less nimble online, then a traditional high street bank or building society might be a better choice for provider.

If you’re a student or recent graduate, your requirements may differ from a couple looking to share their first home together. While cheap overdrafts may be the top priority for the former, those who co-habit are more likely to be interested in a joint account, allowing them to easily share financial responsibilities like a mortgage or rent. If you’ve just turned 16, you can open your own bank account. Some of the best bank accounts for 16 year olds offer cool perks, such as discounts on driving lessons.

Or perhaps you’re simply looking for somewhere to stash your savings and take advantage of UK interest rates forecast for 2024. If that’s the case, then savings accounts offering competitive interest rates on credit balances are likely to be the ones that catch your eye, ring-fencing funds for future use rather than being specifically set up to dip into and out of. At a very basic level, ask yourself how much typically you’ll be putting into and taking out of your account, and how often you move money? It’s the first step in narrowing down the choice.

What features might different current accounts have?

An overdraft facility lets you spend more than you currently have in your bank account. However, it comes with interest charges. Recent overdraft statistics in the UK show that 1 in 5 UK adults are overdrawn every month. As a result, overdraft charges will be something many look out for when they compare current accounts. If you know you’re likely to need this occasionally, focus on providers that offer them cheaply. Also, look out for overdraft buffers - an overdraft amount for no interest charges. 

If you travel a lot, you might be curious about overseas spending features. Many online bank accounts offer good rates on foreign exchange and free international currency withdrawals. Online banks are sometimes referred to as digital banks or challenger banks. There are also prepaid cards for use abroad that can be an alternative, offering competitive exchange rates too.

Another attractive feature of an online or digital bank account is the ability to manage your finances from your phone. Most send real-time spending notifications, encouraging conscious spending and giving you a better idea of where your cash goes, plus a whole other raft of cool in-app features like bill splitting.

We touched upon savings accounts briefly earlier, which usually offer the best features for people looking to be paid interest on their balance. Not many current accounts do that these days, so if you find one that does, it could be worth investigating. Alternatively, look for providers who, as a perk of opening a current account with them, give you promotional rates on savings accounts. That might be a neat way around the problem.

Reward and packaged accounts, meanwhile, go beyond what a standard account offers by throwing in (typically with monthly or annual fees attached) extras like breakdown cover, travel insurance, mobile phone insurance or cashback. Each account will have slightly different features – for example, money back on the bills you pay from that account – but it’s always worth making sure the benefit of the add-on outweighs associated account costs.

Finally, if you’re moving rather than opening one up for the first time, look for switching bonuses and rewards – basically tempting offers banks and building societies reel out specifically to incentivise new custom, including cash lump sums!

What is a basic bank account?

Basic bank accounts are for people who aren’t eligible for a standard current account, perhaps because they have a poor credit history or have only moved to the country recently. While you can still use it to pay bills and receive money, and most now offer debit cards, don’t expect any of the ‘add-on’ features described above.

For example, with a basic account, there’s no overdraft facility, and there may be a lower daily withdrawal limit for taking money out of cash machines than normal current accounts. While they’re certainly ‘no frills’, they’re a great option for people with a checkered financial record, allowing them to begin to improve their credit rating.

Will I be charged for using a current account?

While most current accounts are free, there are some charges. Overdrafts are the obvious ones. Recent changes introduced by the FCA mean interest rates from banks and building societies on their overdrafts range from around 15% to 40%. And, all overdrafts (authorised or unauthorised) will be charged at a single annual interest rate (APR), making it easier to compare bank accounts and their charges. And there’ll no longer be daily or monthly fees for using your overdraft.

Packaged and rewards accounts also usually have associated costs, normally a monthly fee. Again, don’t be blinded by the apparent perks – always do the sums before applying to make sure the ‘add-on’ is worth what you’re paying to have the account.

Next, look out for ATM costs when comparing current accounts. In the UK, this service is usually free, but exceptions include the cash machines you’re likely to find in small shops or bars, where you could be charged up to £5 at a time. Overseas withdrawals can also be steep, with some banks charging up to 3% on the amount withdrawn. Plus, bank account providers impose currency conversion charges on both overseas withdrawals and purchases. Digital banks like Monzo and Starling Bank don’t charge foreign transaction fees and have reduced withdrawal fees - another reason why many switch to challenger banks.

If you’re sending or receiving money in a currency other than sterling, international money transfer fees can also be costly with a standard current account. Finally, make sure you’re not going to be caught out by cheque fees - cancelling one can be a fairly hefty financial hit.

Can I open a new bank account online?

You can, and in some cases, the process takes less than ten minutes. You’ll need to have all the relevant documents to hand as banks will need to verify who you are and where you live before they can offer the account. Sometimes, this ID can be sent electronically.

If you’ve opted for an online bank account, you’ll need to download the provider’s app first. As with any new account, you’ll also be prompted to read the privacy policy and consent to your information being held by the bank or building society and shared with credit reference agencies.

If you already have a bank account and are merely switching bank accounts, the process should take no longer than seven working days using the Current Account Switch Service.

If, however, you’re opening an account from scratch, the length of time will vary. Account details and debit cards are usually sent out within seven to ten days.

What bank accounts are the safest?

If your definition of ‘safety’ means knowing your money is protected by the relevant banking bodies if the provider goes bust, for example, there are certain things you should look out for when making a current account comparison. First, make sure it’s Financial Conduct Authority (FCA) approved.

Check to see if it’s covered by the Financial Services Compensation Scheme (FSCS), which protects the first £85,000 of your savings if the provider goes under. Some accounts, like prepaid cards, are e-money accounts and are not covered by the FSCS.  As a result, it may be best not to keep large amounts of money on prepaid cards and other similar e-money accounts.

Note that the FSCS only applies to funds saved within each financial institution with a banking 'authorisation' - not each bank account or even each bank. Put simply, if you’ve saved more than £85,000 with two banks that are owned by the same institution with just one authorisation, you're only covered for £85,000 in total.

You may also be concerned how easy it is for hackers and other fraudsters to get their hands on your account details. Or how safe your money is if your phone is stolen with a banking app. While it may be tempting to rule out mobile-only accounts for that reason, these actually boast surprisingly rigorous safety procedures, including at sign-up.

Instead of (or as well as) a standard PIN, many online only banks favour more sophisticated in-app authentication, including facial recognition and fingerprint scanning. Some providers also allow you to freeze (effectively block) your lost bank card via their apps and then unfreeze the card if you find it. 

As different types of online scams and hacking become more common, bank accounts that offer nimble technology and speedy customer service could help limit the damage, so don’t be afraid to ask providers questions about this before committing to opening an account with them.

Concluding

There’s no ‘one size fits all’ recommendation for identifying the top deal on the market. So much depends on your spending habits, credit history, how confident you are digitally and even how often you travel abroad. As a general rule of thumb, however, opt for one with low or no fees and that’s easy to manage and use. Rewards and other perks can be attractive, but at the end of the day, nothing beats being able to look after your finances free of stress and charges.

Consider your needs and what type of account would suit you. Once you’ve worked out the type of account best suited to your requirements, a host of bank account comparison sites like MustCompare will help you further whittle down the options. 

One final tip: look at reviews of which banks offer exceptional customer service. For example, a good gauge is Net Promoter Scores (NPS), which measure customer loyalty by asking how likely customers would recommend a company or organisation. Scores range from -100 to +100. For example, according to the Customer Guru website, First Direct has a score of 73, Barclays has a score of 14, and HSBC has a score of -14.

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