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FEATURE: Current affairs

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15/02/2008

With a rash of new current accounts hitting the headlines thanks to their impressive interest rates, what should you look for in a current account? Barney McCarthy reports

Presuming you don’t keep your money under your mattress, the chances are that you use a current account to look after your cash. The choice of banks and building societies can sometimes seem bewildering, but such an abundance of options isn’t always a bad thing as you are more likely to find a deal that suits you. A crowded market also means current account providers fight harder for your business, offering ever more competitive products.

The latest current accounts to take the spotlight are Alliance & Leicester’s (A&L) Premier Direct and Premier 50 offerings. Both carry a credit interest (that is, this is the rate of interest on any funds you have in the accounts) of 8.5% AER – a whopping 2% increase from its previous level. A&L also offers 0% on authorised overdrafts for 12 months, a flexible feature that may be handy if you are faced with some unexpected expenditure.

Between the lines

While the A&L deal is unarguably one of the best on the market at present, it is important to consider more than the headline rate. The 8.5% rate is only available for a year, after which it reverts to 4.25%. It also only applies to the first £2,500 in the account, so won’t necessarily be the best deal if you intend to place large funds in your current account. The A&L account requires minimum monthly funding of £500 (all the highest paying credit interest accounts require some kind of monthly minimum input), meaning it will only be worthwhile if you are going to have a positive balance in your account. Internet banking is also compulsory, which may put off those who aren’t computer compatible.

But despite the attractive accounts available, many people ignore the offers and stick with what they know. Consumer research by A&L reveals that 80% of current account holders have not switched their current account in the last five years. This inertia can be due to a number of factors – being tied to an existing lender by an overdraft or other financial commitment, habit and laziness being just a few examples.

Doing your homework

Given that most current accounts will offer more or less the same to you, how do you go about selecting the right one? You may require an overdraft facility if you tend to have cash flow problems. Be careful though – these are rarely free (apart from on student accounts), so don’t spend them as freely as you would your own money.

For the sake of convenience, you may wish to bank online or over the telephone. Most providers will offer these facilities nowadays. Having a chequebook may be important to you, but this is a payment method on the wane, so may not be offered for too much longer. Some accounts offer additional facilities such as phone or travel insurance, but be aware that you are probably paying for these add-ons somewhere down the line.

Despite the much-publicised bank charges saga, the stats would seem to suggest that the majority of people stick with their current account through thick and thin, so make sure you choose the right one for you.

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