Current Accounts vs Savings Accounts

Current accounts and savings accounts are the two main types of account on offer from banks and building societies - but what exactly is the difference between the two and which type of account is right for you?

House Made Of Coins

Whether you should open a savings account or a current account will depend largely on how you plan to use your new account.

Each offers different banking facilities and has benefits and restrictions that will determine how you access and manage your money.

What's the difference?

A current account is generally best suited for managing day to day transactions, while a savings account provides a safe and potentially profitable home for your extra cash.

Most current accounts allow you to set up automatic payments - including direct debits and standing orders - issue cheques and provide a debit card that you can use to withdraw cash and pay for goods and services.

Current accounts also often come with additional benefits that make it easier to manage your money - overdraft facilities and cheque guarantee cards for example.

Some (usually referred to as 'package current accounts') also offer extra features such as mobile phone insurance and breakdown cover in return for a fee.

However, the vast majority pay little in the way of interest on your in-credit balances. Savings accounts tend to pay something in the way of an interest rate on the money you hold in them, although the return available varies significantly between accounts.

Some savings accounts pay you interest without deducting tax (Cash ISAs), while others offer better interest rates for an introductory period (usually by way of a bonus interest rate), or if your agree to leave your money for a fixed period (Fixed term bonds).

While the above definitions apply to the vast majority of current accounts and savings accounts in recent years a number of the features traditionally offered by currents accounts have become available on instant access savings accounts, while some current accounts have also started offering attractive interest rates.

So when should you open a savings account and when would you be better opting for a current account?

Interestingly the answer isn't quite as clear cut as you may think....

When should you save in a current account?

In recent years banks have started to offer attractive interest rates on selected currents accounts in an attempt to lure customers from rival banks.

Often the interest rates available through these deals are higher than the returns available on many instant access savings accounts!

But does it really make sense to use your current account as a savings account?

Check the interest rate

The main reason you might consider using a current account to save is if you are offered an attractive interest rate in return for leaving a significant balance in the account.

However, it's not always that straight forward. Firstly, you'll need to check whether you could get a better interest rate from a traditional savings account - you can compare accounts using our savings accounts table.

If the current account you've found beats all other contenders then it may be worth investigating the possibility of using a current account to save.

Check the ts and cs

Although some current accounts offer tempting headline interest rates, on closer inspection you are likely to find that it's not as straightforward as it may first seem.

For instance there are usually a number of conditions that you must meet in order to actually get the advertised rate.

For starters, most will require you to deposit a certain amount of money in the account each month.

While this might not be a major issue if you plan to have your salary paid into the account, you need to check what's expected of you and whether you can meet it before you apply.

Additionally, most high interest current accounts limit the balance that will earn the headline rate. As any money in excess of this threshold will earn interest at a far lesser rate it's not worth keeping any extra money in the account.

Transferring the extra to a high interest savings account will help you to maximise the return on your money.

Is it wise to keep a large balance in your current account?

Before switching to a high interest current account and using it to stash your excess cash, you also need to consider whether it is wise to keep your savings in an account that you use for your day to day spending.

Firstly you need to consider just how likely you would be to spend the money if it is sat in your current account. If you are trying to save will having such ready access impede your saving plan?

Secondly, while bank account security is generally quite robust, if someone were to get hold of your bank card they could potentially access your savings balance.

Although you should be able to reclaim the money from your bank in the event of fraudulent activity you may be without the balance until the matter is sorted.

So is it worthwhile?

If you usually carry a positive balance or have savings up to the maximum allowed on a high interest current account and find that you will easily meet the necessary criteria then it is seriously worth considering using a current account to hold some of your savings.

However, you need to be sure you couldn't get a better return elsewhere and be happy to manage your day to day finances in the same account as your savings, if this isn't the case then stick to a separate savings account.

Can you use a savings account as a current account?

Many savings accounts now offer a number of features that were once solely available with a current account - but does it really make sense to use a savings account for your day to day transactions?

These extra features include cash cards/debit cards to withdraw money from the account or pay for goods in stores.

However, while some savings accounts now offer cash cards or debit cards, there are still certain features which are only available with a current account.

Yet many of the savings accounts that offer these extra facilities may do so at the expense of a good interest rate, meaning you could get a better return from a high interest current account.

If you are likely to ever want to use direct debits or an overdraft (even a very small overdraft), these features won't be available from a savings account and you'll need a current account instead.

Many savings accounts also place restrictions on the number of withdrawals you can make without forfeiting some of the interest you've earned - making using them for day to day transactions less attractive.

So while you might feel that you can get more interest from using a savings account, you may find that you don't get all the features you need or that those savings accounts which do offer these features only pay a measly interest rate making it unlikely to be worth considering.

How to decide

If you are looking for an account for your day to day finances then in most cases a savings account is unlikely to cut the mustard. Instead of opting to use a savings account instead of a current account you are likely to be better off using one in conjunction with a current account.

You may also be able to 'link' the two accounts directly if you choose an account from the same bank as you current account.

This is where the balance from the savings account is automatically used to top up the current account when required, or swept into the savings account if your current account balance gets too high.

However, limiting your choice to a single bank could mean you miss out on better interest rates available elsewhere.

Where to get the best accounts

Regardless of whether you decide you need a savings account, a current account or both, getting the best account possible is essential.

For help finding the best current account for your circumstances try following our Action Plan: How to get the best current account, or read our 9 Top Tips for Choosing a Current Account.

If you are looking for a savings account take a look at our guide How to Make Your Savings Work Harder for help getting the best return for your money.

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