The bank account market is red hot, so much so you can now get a £100 bonus or a year-long 0% overdraft 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.
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.
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..
- Alliance & Leicester. £100 bonus & free travel insurance.
Overall winner if you've a £6,050+ salary.
New Alliance & Leicester* Premier account customers get a £100 sign-up bonus, a 0% overdraft for a year, and 0.5% in-credit interest, if you pay in £500/month. This £100 bonus will outweigh the in-credit interest available anywhere else, unless your balance is constantly high (c. £2,500).
To get the £100, you must use its 'Premier Switching Service' to move across direct debits and standing orders, and pay in at least £500 from a non-A&L account within 11 weeks. You should get the bonus within three months of grabbing it. You can bank online, via branch or phone
There are further boons; first, it pays £25 to both you and a friend if you refer them, so team up and join at the same time to take advantage; see Refer a Friend Loophole. There's also free annual multi-trip European travel insurance for the account holder(s) which is great if it suits; yet it's not worth paying to upgrade if you need worldwide or family cover (read Travel Insurance).
In addition, anyone with an A&L or Abbey bank account can currently get a very strong credit card balance transfer deal: 0% for 12 months with no fee. See full details and how this compares in the full Balance Transfers guide.
One slight downside is that anyone who has held an Alliance & Leicester, Abbey or Cahoot account in the previous three months cannot get the bonus, as all are now part of the Santander banking group.
Quick Stats. In-credit interest: 0.5% AER up to £2,500, 0.1% AER above that. Overdraft Cost:Year 1. 0%. Year 2. 50p for each day overdrawn, max £5/month Min Pay-in: £500 (
explanation)
- First Direct. Also pays £100 bonus but you must earn £23,300+
Top account for those who already have A&L/Abbey accounts.
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.
If you already have an account with Alliance & Leicester or Abbey, then this is usually the winner. 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. Earn under £23,300 and have A&L/Abbey already?
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 in each month you deposit £1,000. You can miss any month's £1,000 pay-in, and you just won't earn that month's £5. As this flat payment is actually 'interest', non- or higher-rate taxpayers should claim extra or pay more via tax returns (see Interest Rates Guide).
As the reward amount is fixed, this deal is better if you keep less in the account. An average balance of £500 means the £5 reward is equivalent to a whopping 15% AER interest. Yet if you keep more in the account, with an average balance of £1,500, this equates to just 5% AER.
If you regularly go overdrawn, avoid this like the plague. It charges £1 a day for being in the red, (£2 if your negative balance tops £2,500). Particularly for small overdrafts this can work out as a whopping cost - see the MSE News story about Halifax overdraft charges, and try the Top Accounts if you're overdrawn.
If you already have an A&L or Abbey account, and can't get First Direct, these are likely to win. 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
)
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
explanation
)
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). 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 & £100 bonus.
Top overall overdraft account, if you earn £6,050+
The Alliance & Leicester* Premier account offers a 12 month 0% overdraft, plus a £100 bonus if you switch to it and pay in £500/month, To qualify, you need pass its credit score, and use its 'Premier Switching Service' (which'll move your direct debits, standing orders and salary to it) within 11 weeks of opening the account.
You can bank online, or via a branch or telephone. However, this isn't open to anyone who has had an A&L, Abbey or Cahoot current account in the past three months (as they're all part of banking group Santander).
There are further boons; first, it pays £25 to both you and a friend if you refer them. So team up and join at the same time to take advantage; see Refer a Friend Loophole. There's also free annual multi-trip European travel insurance for the account holder(s) which is great if it suits; yet it's not worth paying to upgrade if you need worldwide or family cover (read Travel Insurance).
In addition, anyone with an A&L or Abbey bank account can currently get a very strong credit card balance transfer deal: 0% for 12 months with no fee. See full details and how this compares in the full Balance Transfers guide.
After the first year’s 0%, A&L has a novel charging system: you pay 50p for each day you use an agreed overdraft, 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.
Quick Stats. In-credit interest: 0.5% AER up to £2,500, 0.1% AER above that. Overdraft Cost:Year 1. 0%. Year 2. 50p for each day overdrawn, max £5/month Min Pay-in: £500 (
explanation
)
- Santander. 0% overdraft account.
Top overdraft if you already have an A&L account
The Santander (fomerly 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.
In addition, anyone with an Santander or A&L bank account can currently get a very strong credit card balance transfer deal: 0% for 12 months with no fee. See full details and how this compares in the full Balance Transfers guide.
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.
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.
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LINKS THAT HELP THIS SITE (all have a * in above article)
(this has no impact on product or pick - see explanation below)
Alliance and Leicester Premier, Alliance and Leicester Premier Direct, Coventry BS, First Direct, Halifax
Explanation (of * links)
How this site is funded. Two types of contacts are listed. The first, which all have a * within the main body of the articles, help MoneySavingExpert.com stay ad-free and free to use, as they're ‘affiliated links' which invisibly take you usually via affiliate linkage or commercial money sites, which then pay this site. The second type doesn't help and therefore doesn't have a *.You shouldn't notice any difference, the links don't impact the product at all and the editorial line (the things we write) is NEVER impacted by the revenue. If it isn't possible to get an affiliate link for the best product, it is still included in exactly the same way. For more details read how this site is financed.
LINKS THAT DON'T HELP THIS SITE
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No * Link Available: Abbey In Credit, Abbey Overdraft, Bank of Scotland, Cahoot, Financial Service Authority, Lloyds TSB, Norwich and Peterborough
Duplicate links of the * links above for the sake of tranparency, but this version doesn't help MoneySavingExpert.com:
Alliance and Leicester Premier, Alliance and Leicester Premier Direct, Coventry BS, First Direct, Halifax
