Current account or savings account: which is right for you?

These are the two main types of accounts on offer from banks and building societies. But what exactly is the difference between a savings and current account and which type of account is right for you?

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What is the difference between a current account and a savings account?

Here are some of the differences between a current and savings account:

Updated 17 February 2021
Current AccountSavings Account
Meant for daily transactionsMeant for regular lump sum deposits
You don't typically earn interest on your balanceAre mean for earning interest on your balance
Allow for overdraftsDo not allow overdrafts
Minimum required balance can be highMinimum required balance is typically low

Package current accounts also offer extra features like mobile phone insurance and breakdown cover in return for a fee.

How current accounts work

How savings accounts work

Can you earn interest with these accounts?

Savings accounts

These are designed with the primary purpose of paying interest rate on the money you hold in them. The higher the rate and the more money in your account, the more interest you earn.

Savings accounts can pay you interest:

Current accounts

Most current accounts don't pay interest on the balance. However, with competition rising, many banks and providers have started offering attractive interest rates if you meet the bank's requirements to be eligible.

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!

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 is not always that straightforward. Firstly, you will 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 have found beats all other contenders then it may be worth investigating the possibility of using a current account to save.

Check the terms and conditions

Although some current accounts offer tempting headline interest rates, on closer inspection you are likely to find that it is 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. Some may also require you to pay one or more direct debits from 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 is 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 is 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.

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?

Another factor is security. Although bank account security is generally quite robust, if someone were to get hold of your bank card, or an unscrupulous vendor started making fraudulent charges on your debit card, you could potentially lose your savings. Though, you should be able to reclaim the money from your bank in the event of fraudulent activity, you could still 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 worth considering using a current account to hold some of your savings.

However, you need to be sure you could not 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. You need to consider if it makes 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 will not be available from a savings account and you will 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 have 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 do not 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 which account to get?

If you are looking for an account for your day to day finances then in most cases a savings account will not suffice. 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.

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.

To find the right current account, use our comparison and make sure you compare the following:

  • The overdraft APR if you expect you will use it

  • Any extras you might use like discounts, insurance or breakdown cover

  • The interest rate on credit balances

  • How you can use the account: do you need online and mobile access or a branch?

  • Incentives like cash rewards

  • Check if you need to maintain a minimum balance or pay in a certain amount per month

New bank accounts are offered all the time, so compare all of the best options to make sure you get the right one for you.