Should I get a current or a savings account?

Should I get a current or a savings account?

Is it time to re-evaluate your finances and open a new account? Are you struggling to work out what type of account you need?

Take a look at the differences between current and savings accounts to see what each type could offer you and which is more suitable to your financial situation.

Do I need a current or a savings account?

When deciding on what type of account you need, the first thing you should consider is what you want to do with your money and what you want to get out of the account. Some of the main considerations to think about are:

  • Do you need the account for day-to-day transactions?
  • Do you want to lock your money away to save it up?
  • Do you want to earn interest on your balance?

Once you have answered these questions, you can then take a look deeper into the accounts themselves.

What are the differences between a current and savings account?

A current account and savings account are both secure places to store your money. However, they both have many differences and are suitable for different situations. Current accounts are generally used for day-to-day transactions, whereas a savings account is a place to store extra cash.

Below are some of the features to highlight the differences:

Current account

  • Receive a Debit or prepaid card
  • Set up Direct Debits and standing orders to pay your bills
  • Overdrafts can be available
  • Income, such as salary, can be paid into it

Savings account

  • Can fix the account so you can’t withdraw money
  • Usually, you don’t receive a bank card
  • Often receive higher interest rates

What types of accounts are available?

It’s not just whether you want a current account or savings account that you need to consider. You will also need to choose what type of account you need.

Types of current account

  • Standard current account – A generic account where your salary can be paid into, you can set up Direct Debits to pay your bills, withdraw money, have an overdraft, and more.
  • Packaged account – Everything a standard current account can do and more. It also offers perks or additional features, such as insurance and breakdown cover. It often comes with a fee.
  • Basic account – Includes all the basic features, including the ability to set up your incomings and outgoings, Direct Debits and standing orders, and withdraw cash. It doesn’t offer an overdraft.

Types of saving account

  • Regular savings accounts – Allows you to put money away each month.
  • Easy access savings – Permits you access to your savings whenever you need it.
  • Notice accounts – You must give notice to access your money.
  • Individual savings account (ISA) – You can earn tax-free interest on the balance.
  • Fixed-rate savings account – The account will hold your savings for a fixed period of time.

Can I earn interest?

There are a lot of accounts available that let you earn interest. However, the rate will depend on the provider and the account, and it can also change year on year or due to the market.

Can I earn interest?

There are a lot of accounts available that let you earn interest. However, the rate will depend on the provider and the account, and it can also change year on year or due to the market.

Savings accounts

These often pay a higher interest rate, so the more money you have in the account, the more you can earn. Therefore, if you want to store a large amount of money that you don’t need to use for your day-to-day transactions, then a savings account may be better for you rather than a current account.

Other benefits include:

  • If you get a Cash ISA or investment ISA, no tax will be deducted.
  • You can get a guaranteed rate for a fixed period.

Current accounts

The interest rates on current accounts can vary. Some basic bank accounts don’t offer an interest rate on your balance at all. Whereas some accounts can offer a good rate, particularly for new customers. That is why it is worth researching who offers the best current account interest rates, and what the rate is when you join compared to what it will be 12 months down the line. This way, you can find the best deal.

Should I save using my current account?

Despite the benefits of a savings account, it can still be beneficial to use a current account to save some money. A few things to consider are the interest rate on your balance, the terms and requirements, and also the security of having a large amount of money in your current account.

Check the interest

Current accounts can sometimes offer high-interest rates on your balance, especially when you first join. The rates can also be better than the rates on a savings account, so it may be worth comparing to see where you can get the best deal.

Read the requirements

Before you sign up to a current account to use for your savings, make sure you check the terms. If you have chosen an account based on the interest rate, make sure to check how long these rates last as they may be temporary. It’s also worthwhile checking if there is a limit on what you can gain interest on.

There may also be some requirements to open the account. For example, you might need to transfer a certain amount of Direct Debits over or pay a certain amount of money in each month. You will need to make sure you can meet the requirements before you open the account.

Is it wise to keep savings with daily spends?

Although current accounts are secure, it may not be wise to keep all your money in one place. If you become a victim of a scam or identity theft, you could risk someone gaining access. Therefore, it can be beneficial to have your savings separate from the rest of your money.

Another reason your savings may not be safe is due to your own ability to not spend the money. If you struggle with budgeting, it can be a good idea to keep your savings separate so that you can’t risk spending it.

Can you use a savings account as a current account?

There are perks to a savings account that may make it appear attractive to use as a current account, such as a high-interest rate. There are also other features on some accounts which make it possible, such as you can withdraw money.

However, savings accounts don’t have all the features a current account has which may make it more difficult to use for your day-to-day transactions. For example, they do not offer any overdrafts, there can be limitations on withdrawals, and you can’t set up Direct Debits.

Also, taking money out can lower the interest rate. Therefore, it may be worth sticking to a current account.

There are a lot of things to consider when it comes to opening an account. That is why it is important to do your research before you do so. It is also important to understand all the features that will be available to you so you can make the most of your account.