Current accounts vs savings accounts
With so many types of bank accounts to choose from, it’s important to know the differences so you can make an informed decision about which account might be right for you. Before choosing between a savings or current account, it can help to start with the basics: what is a current account, and what is a savings account? On this page, we’ll look at current accounts vs savings accounts in the UK, going in-depth on what each one is and the difference between current and savings accounts.
What is a current account: A current account allows you to access everyday banking services, such as getting paid and making purchases
Current vs savings account: Both current and savings accounts tend to feature different perks, services and charges
What is a savings account: A savings account usually offers more interest than a current account, but with more restrictions in place
What is a current account?
A current account provides everyday banking services such as receiving your salary, benefits, and pension, as well as cash withdrawals, deposits, bill payments, and direct debits. You can open current accounts with most banks and building societies, and you can usually manage your account online. If you’re looking for a current account that’s right for you, key considerations might include:
Fee charges
Some current accounts charge a monthly fee. These fees might give you the benefit of lower overdraft rates, high interest rates for account balances or a higher overdraft buffer amount. You might even receive travel insurance, breakdown cover, or mobile insurance as part of a packaged current account. Depending on the current account you choose, and especially if you search around for the best current accounts for interest, the benefits you receive from paying a monthly fee might outweigh the cost of the fee.
Funding requirements
A bank may require you to pay a minimum amount of money into your current account each month. This is common for high interest current accounts, as they offer a better interest rate in exchange for your commitment and regular income. This type of current account may also require you to make a minimum number of debits per month. By issuing funding requirements, your bank is ensuring that this is the main current account you hold.
Credit interests
Some high interest current accounts offer competitive interest rates, but typically only on part of your balance, after which you won’t earn more interest. In such cases, it might be worth exploring current accounts that pay interest on larger balances. Alternatively, you might want to consider opening a savings account and maximising your returns by depositing any money you have above the first part of your balance into a savings account with a better interest rate.
Overdrafts
Overdrafts are a form of credit that allow you to spend more than the sum of money you hold in your current account. If you are considering using an overdraft, you should also compare current accounts which charge a low interest rate on overdrafts. There are two types of overdraft: arranged and unarranged overdrafts.
With arranged overdrafts, the bank agrees to the amount you can overdraw. An unarranged overdraft is where you have either exceeded your arranged overdraft, or you have gone overdrawn without an arranged overdraft.
In April 2020, overdraft fees in the UK were standardised by the Financial Conduct Authority (FCA). Banks are now only allowed to charge overdraft users a simple annual interest rate, and they can’t include any additional fees or charges, making it easier to compare the cost of overdrafts.
Access to your accounts
The most notable benefit of a current account is the flexibility of being able to access your account and your money whenever you need to. Some current accounts offer online and mobile access, while others are more traditional and require visiting a branch or using telephone banking to manage your account. Most banks offer contactless payment as standard, but you should still check as it’s not provided on every current account.
Cash machines
As with the ease of access to your accounts, you might also want to ensure that the current account you choose can be accessed from a wide range of cash machines and that cash machine transactions are free. All of the UK’s major current account card issuers are members of LINK, the UK’s largest cash machine network. Almost every ATM is connected to LINK, and it’s why you can withdraw cash from your account wherever you are in the UK.
What is a savings account?
With savings accounts, you simply deposit your money and earn interest on your savings. The higher the interest rate and amount of money you deposit, the more you’ll earn. There are different types of savings accounts to choose from, depending on your savings goals. While looking for the best interest rate, you might consider options like:
Easy access savings accounts – flexible savings accounts with competitive variable interest rates that allow you to make withdrawals and deposits at your convenience
Notice savings accounts – lump sum savings accounts with variable interest rates that allow you to make withdrawals after set notice periods
Fixed rate bonds – lump sum savings accounts with fixed terms (typically between six months and five years), which offer competitive fixed interest rates
For an overview of the top rates available on these accounts, head to the Raisin UK savings account comparison.
Is there a difference between a current account and a savings account?
There is a difference between savings and current accounts, and it’s worth comparing the features of a current vs savings account to understand how each can contribute to your overall financial goals. A current account is usually a better choice for the everyday management of money, and for transactions such as withdrawing cash and paying your bills. A savings account, as the name implies, makes an ideal home for your spare cash and lets you earn interest on it. You will typically find the best interest rates on savings accounts, rather than current accounts.
You’ll find the main difference between a current account and savings account is the level of access, and your choice may be influenced by the type of income you have. Consider whether you have consistent monthly earnings that let you put money away, or a more irregular income that you might need frequent access to. Whether you opt for a current account or savings account will ultimately depend on your personal circumstances, financial goals, and spending habits.
Current accounts
Current accounts are transactional accounts. This means you can make withdrawals with few limitations on the amount you withdraw and how often.
Many UK current accounts are fee-free, but some come with monthly fees, normally in exchange for cashback and other benefits or rewards.
Current accounts don’t usually offer interest, no matter how much money you have in the account unless you open a high interest current account.
Savings accounts
Savings accounts are a form of investment rather than a transactional account. You’re essentially allowing your bank to use your money as a loan they can earn returns on and in turn, pay you interest.
Savings accounts typically place restrictions on how frequently you can access your money. This is so you can earn a more competitive rate of interest.
When deciding between a savings vs current account, you’ll normally find that savings accounts have fewer administrative fees than current accounts. This is because they are less expensive than current accounts to administer.
You can earn money simply by storing your money in a savings account.
Should I open both current accounts and savings accounts?
Yes, while it can be helpful to weigh up the benefits of a current account vs savings account, many people have both current accounts and savings accounts. Having both accounts can make it easier to manage your money and allocate funds for set expenses or savings goals. Current accounts provide a convenient way to pay for everyday necessities such as shopping and bills. You won’t usually earn much interest on your funds in a current account, but your money is easily accessed and easier to spend.
Opening a savings account allows you to commit a portion of your money and build up your savings according to your savings goals, whether that’s saving for a rainy day, saving for retirement, or saving for a special event.
Can I use a savings account as my current account?
Some savings accounts now offer features that were once only available with current accounts, such as cash cards or debit cards for easy transactions and withdrawals. Some also offer appealing perks, such as attractive rates, that make them ideal for using as an everyday account. In a savings account vs current account comparison, current accounts typically feature less competitive interest rates.
While savings accounts, especially easy access ones, provide flexibility for withdrawals, there are still many everyday features only available with current accounts, like bill payments through direct debit and salary receipt. Keep in mind that while easy access savings accounts provide flexibility, they may offer lower interest rates than other types of savings accounts.
Can I have a savings account without a current account?
If you’ve chosen a bank you’d like to save with, and you don’t already have a current account with them, they may require you to open a current account. If you’re a new customer, you’ll generally need to provide your ID and proof of UK address to open the current account.
Are you a beginner saver? You might prefer to use the simple savings service offered by Raisin UK. We do all the legwork for you and simply show you where you can get the most competitive interest rates.
How much money should you keep in your current account?
How much money you should have in your current account will depend on your personal circumstances, such as your income and monthly bills. However, it’s always best to have a little bit spare each month, just in case. As a guideline, workers should aim for at least three to six months’ worth of expenses in their account, while retirees should keep around one to three years’ worth.
It’s important to stay on top of your personal finances, and that’s easy to do with our free budget planner.
Can you have more than one current account?
Yes, you’re not limited to just one current account. It’s actually possible to manage multiple current accounts across different banks without affecting your credit score, as long as you avoid opening several new accounts at once. This would allow you to take advantage of those sign-up incentives, such as cash rewards or zero-fee overdrafts. Having multiple current accounts can also help you allocate funds more effectively for different purposes and safeguard your money by avoiding concentration in a single account.
Can I use a current account as my savings account?
Using a current account as a home for your savings can be a sensible choice depending on your personal situation. However, it’s a good idea to factor in the interest rate applied to the current account, as well as the terms, requirements, and restrictions. It’s also worth considering whether a large amount of money would be secure in a regularly used current account.
One of the main benefits of savings accounts is a competitive rate of interest, but you’ll generally only earn a good interest rate when you deposit your money and leave it in your savings account to grow. Even the highest interest current accounts tend to offer lower rates than savings accounts.
If you want to quickly and easily open a high-interest savings account, register for a Raisin UK Account and apply for free today. We don’t charge you for opening savings accounts through our online marketplace.