Best Bank Accounts

The bank account market is red hot, so much so you can now get a 0% overdraft for a year, or earn £100 for switching! This step-by-step guide with daily updated best buys compares the top bank accounts will show you how to easily save many £100s a year just by picking the very best.

• Which account type’s right for you?
• Switching accounts is easy
• The Best Bank Accounts
• Best Buy: If you're in-credit
• Best Buy: If you're overdrawn
• Warning! Never exceed your limit
• Can't get an account?
• Other Articles/Discuss

Don't let sleeping bank accounts lie

Remember bank penalty charges are unlawful: get six years' charges back on old accounts
Bank Charges: Reclaim them, they're unlawful

Which type of bank account user am I?

Banks are constantly trying to confuse us with new charges, incentives and ‘terms & conditions’. In order to foil their subterfuge and make sure you get the bank account that's cheapest, or most rewarding, for you, it’s vital to work out what kind of customer you are.

Are you constantly in-credit, or always overdrawn? Or do you move between one and the other through the course of a month? Take a look at your last few statements to get the true picture of your banking; this’ll tell you which type of account to plump for...

• Are you always in credit?
  
  If you never touch your overdraft, not even by a pound or two, you should grab the account that pays the most interest on your positive balance. Find the best: Top In-Credit Accounts
  
  
• Do you go overdrawn?
  
  If your balance creeps, or stays permanently, in the red, you need an account that charges you as little for using your overdraft as possible. Find the best: Cheapest Overdrafts
  
  
• Are you a student or recent graduate?

  If so, you can easily beat the terms of the best of the above three types of accounts. Find the best: Read the Best Student Accounts or Best Graduate Accounts guides.

• WARNING.... Do you pay a fee for your bank account?

  If you have a ‘packaged account’ from Barclays, Lloyds or NatWest banks, amongst others, watch out; these are usually an expensive pile of pants. Most people sign up after a sales call or e-mail promising many "great features" and telling you how much better it'll be with this holy grail of banking.

  Now think about whether you’ve ever used those facilities and are they worth the price?

  Step 1. Calculate the real annual cost. For example if you're paying £12 per month, that's actually £144 a year. Just because getting the packaged accounts gives you 'better rates' don't think that means you've got a top deal. The rates may be better than the pitiful deals these banks would give you otherwise, but they're easily beatable by the fees-free deals listed elsewhere in this guide.

  Step 2. As the rates aren't good, you need to evaluate the benefits it gives you. Do you ever use them and if you do, is the account fee cheaper than getting them separately? For example, for less than £40/year you can get annual travel insurance or breakdown cover.

  Step 3. Assuming these accounts aren't worth it, ditch & preferably switch to a non-fee account with the best rates; see the questions above for how to decide.

Switching bank account is easy & profitable

A few years ago, banks gained the ability to automatically transfer standing orders and direct debits for you, making switching much easier. It means your main task is to notify people who pay into your account; especially your employer. Yet even so, always keep the old account open for a good few months after the switch just in case something’s been missed. See the BACS Account switching timeline to see how long the switch should take.

Switching will make you £100s.

If you're thinking that switching account won't make much difference, you're wrong. While banking is 'free', this only applies if you're in credit. Yet in reality, most banks pay you a pitiful 0.1% interest and then loan your money out to others in the form of overdrafts at 20%. Thus, even if you like the customer service ask yourself, "Is it so good I'm willing to effectively pay £100s a year in lost benefit?”

The Best Bank Accounts

The choice doesn't just depend on whether you’re always in credit or go overdrawn. As well as passing a credit score, most accounts require you to deposit a certain amount every month. This needn't stay in the account, nor must you be in-credit. Its effect is to set a minimum earnings threshold and ensure thats paid into your account.

For example, a £1,000/month ‘pay-in’ means you must earn at least £15,000 before tax, as then your monthly take home fulfills the pay-in requirements. From here on, all minimum pay-in are converted into minimum earnings. With work, you can cheat this rule; withdraw some money each month and pay it back in e.g. if you earn £900 a month, pay your salary in, withdraw £100 and re-deposit it.

It's also worth noting, sometimes you can get extra cashback signing up via special websites, see top cashback sites for a full explanation and how to find which sites pay most.

Top accounts if you’re always in credit

If you never incur overdraft charges, it’s all about earning the most interest on your positive balance. Yet on most accounts you’ll only earn interest on a limited amount, so the best thing to do is sweep the rest of this cash into the Top Savings Accounts to maximise your interest. If you usually keep a consistently high balance in your current account check the Specialised Alternatives section.

Which is best pick for you will depend on how much you earn, how much you keep in the account, and what accounts you've currently got..

• First Direct. Pays £100 bonus but you must earn £23,300+
  Top account, if your salary is high enough
  
  New First Direct* 1st account customers get a £100 bonus, earned by depositing at least £1,500 for at least three months. There's a second £100 on offer if you switch away from First Direct within a year, if you've maintained the monthly £1,500 deposits. The sting in the tail is, miss the min. deposits but keep the account open and you'll be whacked with a £10 monthly fee.
  
  The account also gives a small 0% overdraft of £250, though it charges a pretty big 15.9% beyond that. If you earn £23,300+, this is the clear winner. Plus if you were to get this, then ditch and switch between six months and a year after, the double bonus makes it an even bigger winner.
  
  Quick Stats. In-credit interest: NONE Overdraft Cost: 0% up to £250, 15.9% above that Min Pay-in: £1,500 ( explanation)
  
  
• Halifax. Top reward if you earn under £23,300
  Pays you £5 a month if you pay in salary of £14,700+.
  
  The Halifax* and Bank of Scotland* Reward accounts pay a flat £5 for each month you put £1,000 into the account. You can miss any month's £1,000 pay-in, and you just won't earn that month's £5.
  
  Because the reward amount is fixed, this means it's a better deal if you keep less in the account on average. An average balance over a month of £500, means the £5 reward is equivalent to a whopping 15% AER interest. Yet if you tend to keep more money in the account, with an average balance of £1,500, this equates to just 5% AER.
  
  If you don't earn enough to get First Direct, these are likely to be the winners. The £5 monthly payment is ongoing, not just for the first year, making them a good long term bet. However, they're beatable if your average balance is consistently over £1,250 (see below).
  
  Quick Stats. In-credit interest: £5/month (AFTER tax) Overdraft Cost: Arranged, up to £2,500: £1/day. Arranged, over £2,500: £2/day. Unarranged: £5/day. Min Pay-in: £1,000 ( explanation )
  
  
• Alliance & Leicester. Top account if you earn under £14,700
  Get 6% in-credit interest, if you earn over £6,050.
  
  Alliance and Leicester's* Premier Direct account pays 6% interest on balances up to £2,500 for the first year (0.1% above that), then 1% in year two, when you should ditch and switch. Abbey's* Preferred In-Credit account pays 6% too, though you need to pay £1,000/mth in.
  
  A&L's is an online account and you need to pay in £500/month, equivalent to a salary of £6,050. It also gives a 0% overdraft for a year, plus pays a £25 bonus to both you and a friend if you refer them to it. So team up and join at the same time to take advantage (see Refer a Friend Loophole), plus earn more by referring more friends.
  
  This can also be also the winner if your balance consistently tops £1,250 (as a basic rate taxpayer); in that case the interest earned beats the £5 a month given by Halifax, but not the First Direct £100 bonus.
  
  Quick Stats A&L. In-credit interest:Year 1. 6% AER up to £2,500. 0.1% over £2,500.Year 2. 1% AER Overdraft Cost:Year 1. 0%. Year 2. 50p/day overdrawn, max £5/month. Min Pay-in: £500 ( explanation)
  
  

Specialised Alternatives

There are a number of other options that may suit.

• Can't pay in a set amount each month?
  
  A few banks have a no 'pay-in' threshold, meaning there's effectively no earnings limit; Cahoot is the highest payer at 1.1%. The Halifax* and Bank of Scotland* Reward accounts also don't require regular monthly deposits, but unless you sometimes pay at least £1,000 in, you'll never earn any interest.
  
  These accounts require you to have a good credit score, so are suitable for those who have wealth but not those struggling. If that's the case do also read the Basic Bank Accounts section or the Credit Unions article.
  
  
• Keep high amounts (above £2,500) in the account?
  
  If you keep a consistently high balance in your current account, then the Top Accounts above could be beatable. However, you'll probably be better off by sweeping any extra cash into an instant access savings account, as these pay decent interest on the whole balance, rather than the limited amount of your current account.
  
  Yet if you're set on keeping the cash in a current account, there's a couple of decent options...
  
  
  Lloyds TSB, up to 4%. For balances between £5,000 and £7,000.
  
  If you usually have a balance between £5,000 and £7,000, pay in at least £1,000 a month and always stay in credit, the Lloyds Vantage account will pay you 4% AER. Vantage can be added to any of the Lloyds current accounts, so select 'Classic Account with Vantage' for the fees-free version.
  
  If your normal balance is above £3,000 it's also pretty good, paying 3% AER. Yet below this the rate plummets; balances between £1 and £999 get just 0.1% AER and for £1k to £3k it's 2% AER. If your balance tops £7,000, you'll earn 4% on everything below that, but just the standard rate for your account on the extra bit (0.1% with the Classic account).
  
  Unless your balance is always between £5k and £7k it's better to move spare cash to a Top Savings Account or opt for one of the In Credit accounts above.
  
  Quick Stats. In-credit interest: Up to 4% AER if your balance is between £5,000 and £7,000. Min Pay-in: £1,000 ( explanation )
  
  Cahoot, 1.1%.
  
  If you’ve usually got substantially more than £2,500 in-credit, the Cahoot current account pays 1.1% interest on all balances up to £250,000. This means as soon as your income or salary is paid into it, you'll be earning a high rate of interest on the whole amount.
  
  Having said that, it's easily beatable by the Top Savings Accounts so it's sensible to sweep any cash which isn’t in everyday use into savings.
  
  Quick Stats. In-credit interest: 1.1% AER. Overdraft Cost: £100 interest free, then 11.8%. Min Pay-in: None
  
  

Top Accounts if you go overdrawn

Overdrafts are debts; and often they’re much more expensive than credit cards, so avoiding being overdrawn is always a good policy. The costs below strictly refer to going overdrawn within your limit, if you go beyond that you’ll pay through the nose (see avoid bank charges section and the Bank Charges Comparison tool).

If you are overdrawn, don't just tackle the symptoms, also try using the free budget planner and giving yourself a money makeover to tackle its causes.

Alliance and Leicester's top, yet that's only for the first year. So if you already have its bank account, it's a whole different selection.

• Alliance & Leicester. 0% overdraft for 12 months plus free travel insurance.
  Top overall overdraft account, if you earn £6,050+
  
  The Alliance & Leicester Premier* account offers a 12 month 0% overdraft, if you pay in £500/month. To qualify, you need to pass its credit score, pay in £500/month and use its 'Premier Switching Service'. This will move your direct debits, standing orders and salary from your present bank account to it.
  
  This account can be operated in branch, online, or by phone, plus it gives free annual multi-trip European travel insurance for the account holder(s) (see Travel Insurance guide for how this compares). One downside is it pays just 0.5% interest if you’re in credit; if this is a big selling point, another A&L account, the online-only Premier Direct* pays 6% on everything up to £2,500.
  
  There's a further possible bonus with both of these; recommend a friend to get one and you'll both get £25. So if you team up and join at roughly the same time you can be quids in (see Refer a Friend Loophole).
  
  After the first year’s 0%, A&L has a novel charging system: you pay 50p for each day with a negative balance, up to a max. £5 per month. This is quite cheap if you're overdrawn by £800+ but is easily beaten for smaller overdrafts. Don’t let this put you off switching for the 0% deal though, as that saving will dwarf future costs.
  
  A&L Premier Direct Quick Stats. In-credit interest: 0.5% AER up to £2,500, 0.1% above £2,500.Overdraft Cost:Year 1. 0%. Year 2. 50p for each day overdrawn, max £5/month.Min Pay-in: £500 ( explanation)
  
  
• Abbey. 0% overdraft account.
  Top overdraft if you already have an A&L account
  
  The Abbey also offers a free overdraft for 12 months with its Preferred Overdraft Rate current account (not the Preferred In Credit Rate option) as long as you pay in £1,000/month.
  
  If you do go into credit with the overdraft account you will only get 0.1% AER interest. After a year the overdraft rate increases to 12.9% EAR, which you can improve on by switching again.
  
  Quick Stats. In-credit interest: 0.1%. Overdraft Cost: 0% for year 1, then 12.9% Min Pay-in: £1,000 (explanation)
  
  
• First Direct. £100 sign up bonus, but only interest free to £250
  Good alternative if you earn over £23,300
  
  If you only need a small overdraft limit, the First Direct* 1st account offers 0% interest on balances under £250, but this shoots up to 15.9% EAR above that amount. Still, if that's sufficient, its £100 sign-up bonus makes it as good as Alliance & Leicester.
  
  The bonus is earned after three months of depositing at least £1,500 into the account, and there's a further £100 on offer if you decide to switch away from First Direct within twelve months of opening the account, providing you've maintained the monthly £1,500 deposits.
  
  There's a sting in the tail though; if you don't maintain the min. deposits, and don't close the account, you'll be subject to a monthly fee of £10 for using it.
  
  Quick Stats. In-credit interest: NONE Overdraft Cost: 0% up to £250, 15.9% above that Min Pay-in: £1,500 (explanation)
  

Alternative overdraft solutions

For many people, the cheapest option is actually to shift the debt to a cheap credit card. Usually the easiest way to do this is by using a simple technique.

• Step 1. Apply for a cheap 0% card for spending on.
  
  Apply for a 0% card for spending on so that everything you spend on that card is then at a cheap rate.
  
  
• Step 2. Use that credit card instead of a debit card/taking cash out.
  
  Now use the credit card for your normal day-to-day spending, making only the minimum monthly repayments on it. This means your monthly income pays off your overdraft as there's no money being taken out of that account. Instead the debt builds up on the credit card, but at 0%.
  
  
• Step 3. Stop using the card once your bank account is in credit.
  
  Doing this is technically the best solution for those with self-discipline, you can’t allow yourself to spend more on this card or build up more debt. You should stop using the card once your account is in credit. The aim is to try and pay the card off by the end of the 0% period, or at the worst, shift it to a cheap balance transfer deal.

A tip to save you cash if you mix ’n’ match.

If you jump regularly between being in-credit and using your overdraft, it's sensible to keep as much money in your account for as long as possible. Therefore, if you’ve the self-discipline, set all your household bills, direct debits and other standing orders to leave your account towards the end of your working month, artificially boosting your balance.

Yet if you fear this may lead to money needed for bills being spent before it’s needed, don’t take the risk. Also, take a read of my Budgeting article to help manage your cash flow.

Bank Charges: Never go beyond your overdraft limit

Go beyond your overdraft limit and you’ll pay through the nose. While I’ve been involved in championing Bank Charge Reclaiming let me say this as loudly as possible.

‘The best way to deal with bank penalty charges…
is not to get them in the first place.’

As soon as you go beyond your limit, your credit score will be hit and you'll start to pay very heftily. There are a number of things you can do to avoid getting the charges. The following are the best ways to avoid bank charges.

• Always check your balance before withdrawing money.
  
  If you’re close to your limit, ensure you check your balance before withdrawing money and shopping. Don’t go beyond it.
  
  
• Remember your overdraft is a debt.
  
  Many people don’t think of overdrafts as a debt but they are; in fact, they’re often more expensive than credit cards. If you’re near your overdraft limit, you’re actually better off spending on a credit card than from your bank account as at least this way you’ll avoid the hefty penalties. However, even better than that, is to avoid spending at all where possible.
  
  
• Do a money makeover and budget.
  
  By running close to your overdraft limit you have some fundamental money management issues. If your answer to this is “I just don’t earn enough”, then you’re wrong. While that may be true, by spending beyond your means you’re going to cause yourself huge financial pain. Read the Money Makeover, Budgeting and Stop Spending guides for more help to start fixing that.

No matter who you bank with, the charges will be hefty which is why I don’t allow it to affect the best bank accounts’ ranking. However, at the moment most accounts are altering their charging structures: if the new charging structures result in significant differences between banks, then it will be incorporated.

Plus you can find out how much the banks will charge you in the...

Bank Charges Comparison tool

What if you get rejected for all accounts?

Most current accounts require a credit check where the bank assesses whether it wants you as a customer; there are a myriad of reasons you may be rejected. Don't assume because one bank doesn't want you, no one will; read the Credit Rating article for a full explanation.

If you can't get an account anywhere.

Sadly, there's a tragic problem in the UK with banking exclusion. If you are one of the people who can't get an account, it's a nightmare. Yet the one under-publicised route is a Basic Bank Account. These are specially designed products for those with very poor credit scores.

The problem is they cost the banks money, and many only offer them as a sop to social responsibility. This means that, unless you very specifically ask for them, it's unlikely they will be mentioned and you'll just be given the normal bank account forms and then rejected.

Yet even with Basic Bank Accounts, if you have limited personal identification it can be tricky to open one. It's a horrid situation and there isn't much of a solution (nag your MP!). I'd suggest trying Barclays or the Co-op bank who tend to be more accommodating than most. See the Financial Service Authority's Basic Bank Accounts PDF Guide.

Alternatively it's worth reading the Credit Unions article which describes how it may be possible to get a Credit Union current account.