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Current Accounts

What are they?

Bank and building society current accounts have traditionally been the accounts used for managing your money day to day. Typically your salary is paid in and payments for your mortgage and other monthly outgoings taken out. Getting hold of your money is usually via a 'cashpoint' machine or over the counter at a high street branch. Outgoings can be paid for using a debit card, direct debits and, to an increasingly lesser extent, cheques.

Ideally you'll have more money coming in than is going out, but if your balance falls below zero your account will fall into an 'overdraft' - basically a short term loan.

Historically these accounts have paid no interest, in fact there was a time when banks acted as though they were doing you a favour by just opening an account. However, times have changed and increased competition means there are now some good deals to be had.

What types are there?

High StreetInternet / Telephone Only'Premier'Private Banking

These accounts are offered by banks and building societies with high street branches across the country. Standard features usually include a cashpoint/debit card, overdraft facilities and monthly paper statements. It's likely you'll also be able to manage your account by telephone and Internet too.

In theory you should benefit from a reasonable level of face to face service with branch staff, when needed. Sadly, in practice these staff are often under pressure to meet sales targets so there's a risk they'll be more focussed on selling you a product or service rather than act in your best interests.


InterestOverdraftDebit CardCurrenciesChequesATMDirect DebitStudents

In the past pretty much all current accounts paid the same rate of interest - zilch! Thankfully increased competition has seen matters improve, with many accounts now paying at least a little interest. The bottom line is that if you consistently have more than a few hundred pounds in your current account you should probably open a savings account paying a decent rate of interest and deposit your surplus cash there.

Some current accounts pay a high headline rate of interest, but this is usually capped at a modest level, such as balances of £2,500 or less. This is better than nothing, but it's still generally a bad idea to treat your current account as a savings account.

Offset Mortgage

If you have a mortgage, a current/savings account, and pay tax, then an offset mortgage could be worth it's weight in gold thanks to a legal tax loophole.

The idea is simple: your current and savings accounts are merged with your mortgage to effectively create just one account. Any savings are then offset against your mortgage when calculating your monthly interest payments. This is equivalent to earning tax-free interest on your savings!

Candid Example

Offset Mortgage Ted Maybank, a higher rate taxpayer, has a mortgage of £150,000 and savings of £25,000, both at an interest rate of 2.40% a year.

His monthly mortgage interest payment is £300 and the monthly interest on his savings £30 after tax.

If the mortgage and savings were consolidated into an offset account, the savings would effectively reduce the mortgage to £125,000, in turn reducing his monthly mortgage interest to £250, a saving of £50.

This is the same as saying that his savings earned him £50 over the month, equivalent to 2.40% tax-free a year.

This type of account allows you to be very flexible with your finances. You can reduce your mortgage balance if you have surplus cash then increase the mortgage balance later on (subject to the account's limits) should you need the money.

Of course, using an offset mortgage means moving your mortgage and current/savings accounts to one provider, which might incur costs and/or penalties, so make sure you factor in these costs when deciding whether switching is worthwhile.

Transferring money between accounts

At some point you're bound to want to transfer money from one bank to another. Perhaps to move money between your own accounts with different banks, send money to a friend or pay a bill. There's several ways of doing this:


Bankers' Automated Clearing Service.

BACS allows you to send money, usually free of charge, from one UK bank account directly to another. It normally takes three working days for the money to clear. On the first day the transaction is entered onto the system, it's processed on the second day and cleared on the third.

Originally introduced in the late 1960s, the service has evolved over the years and is the most common method of transferring money between bank accounts in the UK, although is being superseded to some extent, by the newer Faster Payments Service (FPS).

Current Account Jargon

Here's some of the more common current account jargon you might come across:

BACS PaymentA direct payment from one bank account to another using the Bankers' Automated Clearing Service. Usually takes three days to clear.
Cash (ATM) CardA card that allows you withdraw money from cash machines. Might also double up as a debit card.
CHAPS PaymentA direct payment from one bank account to another using the Clearing House Automated Payment System. Usually clears same day.
Cheque BookA paper based way of making a payment from your bank account to another.
Cleared Balance Money that is in your bank account, cleared, and ready to use.
Debit CardAllows you to pay for items like a credit card, but the money is taken straight away from your bank account, just like a cheque.
Direct DebitsPayments made on a regular basis (e.g. bills) that are taken directly from your account on an agreed date.
FPS PaymentA direct payment from one bank account to another using the Faster Payments Service (introduced in 2008). Usually clears same day.
Standing OrdersPayments that are made direct from your bank account to someone else on a regular basis.
SWIFT PaymentA direct payment from a bank account to an overseas acount using the Society for World-wide Interbank Financial Telecommunications service. Can take up to six days or more to clear.
Uncleared Balance Includes money due to arrive in your bank account that has yet to clear. Money must normally clear before you can get your hands on it.