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Current Account vs Savings Account

When it comes to saving money in cash, there are a lot of things to consider, from the type of account you open to the provider you choose to go with.

One of the main things you might wonder is whether you should have a current account or a savings account. Many people aren’t aware of the differences between the two, and may not think about or know which they should use.

So read on to find out more about the decision between a current account vs savings account and which might be right for you.

Key Takeaways

  • The main difference between a current account and a savings account is that a current account is designed for daily transactions, whereas a savings account is meant for saving money and earning interest.
  • Current accounts and savings accounts have different benefits and drawbacks to reflect the function they were created for.
  • The type of account that’s best for you will depend on your saving goals.

What is a current account?

A current account, also known as a transactional account, is a bank account that is designed to be used for all your day-to-day payments. A current account is typically used for paying bills, setting up direct debits, and withdrawing cash.

Most banks will require you to open a current account in order to use their services. Your current account is usually what your debit card will be linked to, meaning you don’t have to draw from your savings whenever you make payments.

While some providers now do pay interest on the balance of a current account, many banks and building societies do not. You may also be required to maintain a minimum balance, depending on your provider.

What is a savings account?

A savings account is a bank account designed to help you safely store your money, rather than spend it. Savings accounts typically pay interest on your money, and so will usually be the place where you store the greatest portion of it.

In return for a typically higher interest rate to a current account, savings accounts have additional limitations to be aware of, such as contribution or withdrawal limits.

This will often depend on whether you have an easy-access or fixed-rate savings account.

Also consider: Will interest and savings rates rise in 2022?

Easy-access savings accounts

Easy-access savings accounts are essentially savings accounts that have a greater level of flexibility. While easy-access accounts typically offer a higher interest rate than current accounts, they do not often match the high-interest rates offered by other types of savings accounts.

This is because higher interest rates often come with stricter limitations surrounding how you can access, transfer, and withdraw money. Because of the flexibility associated with easy-access accounts, you may be able to get a better rate from a high-interest current account.

Fixed-rate savings accounts

Fixed-rate savings accounts offer you the opportunity to lock away your savings for a fixed period at a certain interest rate. You will usually be given a list of options, allowing you to choose the amount of time your savings account will remain locked, and the rate at which your savings will earn interest.

Unsurprisingly, fixed-rate accounts are less flexible than other bank accounts. In return for a higher interest rate, you will not usually be able to make frequent transactions or make withdrawals without paying a fee. You may also be unable to make payments into your savings during the term.

Some fixed-rate savings accounts require a minimum amount to be used.

What are the differences between current accounts and savings accounts?

There are several differences between current accounts and savings accounts, although the two are slowly becoming more similar as banks offer better deals to attract new customers.

  Current account Savings account
Purpose Work as transactional accounts, meaning they are designed to manage more frequent payments like bills, direct debits, or receiving monthly income. Designed to help save money. Typically offer better interest rates than current accounts with more limitations on using the funds within.
Fees Can vary wildly depending on the bank or building society you are with. Some may have monthly fees to pay or a minimum balance to maintain. Typically fee-free, though will depend on your provider.
Overdraft facilities Most will have an overdraft, allowing you to spend more than you have in your account. You will then repay the overdraft amount with interest. An overdraft is rarely available.
Flexibility Can usually be accessed at any time with no limitations on transfers and withdrawals. Most will also be available through online banking. Do not offer the same flexibility as other bank accounts and often do not have a debit card attached to them, meaning you cannot pay directly from them or withdraw money at an ATM.
Interest Usually have lower interest rates due to the added flexibility and more frequent transactions. Can sometimes open high-interest accounts in return for a fee. Usually have higher interest rates as they are designed for saving. Higher interest rates act as an incentive to put away more money.

Should I open a current account or savings account?

There is no definitive answer to which is better between current accounts and savings accounts, as it is entirely down to your personal situation and financial needs. In fact, you may require a current account in order to open a savings account with the same bank or building society anyway.

Because of this, many people have both a current account and a separate savings account, and transfer funds between the two. They use their current account to manage daily payments, while using their savings account for any extra money at the end of the month to help build towards larger financial goals.

With many providers looking to compete with one another, the boundaries that separated the two accounts are slowly becoming less obvious. If you were to look now, you may find some current accounts with a better interest rate than savings accounts with other providers.

However, these kinds of accounts usually have several conditions and rules that must be met in order to gain the relevant bonuses, like a minimum balance or monthly fees. If you are planning on opening a new account, be sure to read and understand all these conditions before committing.

How much money should I have in each account?

Firstly, if your account has a minimum balance in return for other benefits, be sure to keep enough money in at all times. If your balance falls below the minimum balance required, you may lose access to the other benefits.

Secondly, ensure you have enough in your current account to cover your monthly living costs and any direct debit payments you may have. Your current account is likely to be where your monthly income is paid, so it could be worth transferring any extra cash at the end of the month into savings. Current account limitations often make them an inefficient method of saving.

Savings accounts typically have higher interest rates so offer the opportunity to earn more interest over time compared to a current account. As such, it may be worth having more in your savings account to help you earn interest towards larger financial goals.



Is a savings account safer than a current account?

Most savings accounts and current accounts from high street banks and building societies are covered by the Financial Services Compensation Scheme (FSCS). This means that if your provider fails and goes out of business, you will receive the amount you had saved with that provider, up to a maximum of £85,000.

The one reason that a savings account is potentially safer than a current account is that they do not often have a debit card attached to them, meaning that someone can’t steal your card and spend your savings.

However, due to the availability of online and mobile banking, if someone were to obtain your login details, your savings in all your accounts with that provider could be in danger.

Which is better, a current or savings account?

Simply put, neither account is better than the other as they both serve different purposes. Current accounts function as transactional accounts and should be used for the day-to-day management of your finances, whereas savings accounts act as safe storage for your spare cash.

The likelihood is that your savings account will have more money stored in it due to the higher interest rate, and your current account will usually only have enough to cover monthly expenses with a little leftover.

Current accounts are more flexible as they will have debit cards attached to them, often have online and mobile access, and can be used for frequent transactions. Most salaried employees will use a current account to receive their monthly income. Some current accounts may have a monthly fee if they have a high-interest rate.

Savings accounts are typically less flexible but offer the opportunity for your money to grow. They may limit the number of transactions you can make in a month or year, and do not often come with overdraft facilities. However, they are usually fee-free and ultimately help you to efficiently save money.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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