When you want to open a new bank account, you will have to decide between a savings account and a current account.
These two account types are usually the main accounts on offer from most banks and financial institutions, but what is the difference between the two, and how can you decide which is the right account type for you?
Savings accounts are usually for storing that extra cash you don’t need immediately, and earning interest on it.
Because you regularly put in more than you take out from this account, the bank pays you an interest that, over time, can increase the total amount of money you have saved.
Unlike savings accounts, a current account is used for handling regular transactions, such as every day expenditure, paying bills, money transfers and cash withdrawals. This type of account usually doesn’t earn any interest, or at least very little.
Most current accounts allow you to:
- Borrow money using overdraft system
- Manage transactions online
- Set up automatic payments for bills and standing orders
- Issue checks
- Use a debit card to withdraw cash via ATM or pay for goods and services at designated point of sales.
It is worth noting here that many banks now offer perks with debit cards, such as apps which can act as a digital financial assistant, to both their current account and savings account holders
Now that you understand how both account types work, how do you decide which is right for you?
- Why you need an account?
Your reasons for opening an account will help you determine the type of account to open. As we have already established, a savings account is ideal for money that you don’t intend to spend for some time, while a current account is suitable for daily transactions, purchases and bill payments.
If you need an account where you can place extra cash for long periods, a savings account is what you need, but where you want an account that will allow you to regularly carry out financial transactions, you should consider opening a current account.
Also, savings accounts typically have a maximum number of monthly withdrawals, which means that while you can take money out of your account, your bank will likely charge you a fee, or convert the account to a current account, should you continue to go over the limit.
- Interest earning potential
If you want an account that will earn you some interest, you should definitely open a savings account. Banks don’t pay interest on current accounts, and where they do, this interest is usually very small, and will not do a lot for your finances.
However, in recent times, some banks have been offering attractive interest rates to current account holders, as long as they can meet certain stipulations such as paying in a certain amount of money into the account every month. You will find more information on current accounts interest rates here.
- Terms and conditions
Before opening either a savings account or a current account, it is important that you read carefully, and pay attention to the terms and conditions of the account. For instance, a savings account may require that you deposit a set sum of money each month.
While this may not be an issue to everyone, it can be an issue for people without a fixed income. Therefore, the terms and conditions put in place by the bank on either account can also help you decide which to choose.
Savings accounts and current accounts are both ideal for everyone, but your unique situation may require that you open one or another. Hopefully, this article will help make your choice easy. Also, it is possible to run both accounts simultaneously. You should discuss with your bank to see if this is possible.