Financial Products Series: Current Accounts

The financial products series, to briefly explain and evaluate a wide variety of financial products. This series should be useful to anyone who wants to gain a brief knowledge of different financial products.

This article is the forth in a series of 12 that outlines in simple terms different financial products, how they work, advantages and disadvantages, and how I would rate them. The Products that this series will cover are:
  1. Shares
  2. Structured Products
  3. Cash
  4. Current Accounts
  5. Savings Accounts
  6. Annuities
  7. Certificate of deposit
  8. Options
  9. Treasury Bills
  10. Bonds
  11. Tracker funds
  12. Credit
If any of you can think of any other financial products that you feel deserves a place on this list please get in touch and let me know, or else comment below.

Current Accounts

Picture from freedigitalphotos.net
A current account is an agreement with a bank that they will house your money safely (they will obviously use some of this money in investments) but that you should be able to gain full access to your money whenever you need it. A current account is much like cash (in fact it is essentially a form of cash). It is a means by which people can make transactions in an economy.

Individuals can deposit money into a current account and can withdraw that money through various methods:

  1. By entering a particular branch of their bank and withdrawing the money from their account at the cash desk
  2. By using a debit card to take money out of an ATM machine
  3. By paying for things via a debit card that removes the money directly from your current account
  4. By writing out a check. A check is a written document that tells the banks to pay money from your current account to someone else. Most current accounts come with a cheque book
  5. By setting up standing orders or direct debits so that money is automatically taken out of your account to pay for something on a regular basis, such as a monthly mobile contract
FACT: The difference between a standing order and a direct debit is that a standing order refers to a regular payment between different people and a direct debit usually refers to a regular payment by one person who is paying a company for a particular good or service

Advantages

  • Immediacy of access
  • Use in emergencies e.g. if other assets fall in value or you lose your job and need to cover bills for a couple of months
  • Most businesses require employees to have a current account to pay salaries into
  • Can make transactions via a debit card
  • Small amount of interest - up to 3% depending on the bank
  • Perks for changing accounts such as cashback if you fulfil certain criteria
  • Can get perks such as competitions, special credit cards, access to certain savings accounts
  • Extremely low risk asset
  • Can automate payments and income through standing orders and direct debits
  • £80,000 covered by the Financial Services Compensation Scheme
  • Overdraft capability to allow for a little credit

Disadvantages

  • Loss of value due to inflation
  • Low rates of return

Overall conclusion

Score: 9

Everybody should have a current account. It makes transactions and life in general so much easier.

Advice: Set up direct debits within your current account where needed. They can help to build your credit score. Don't be afraid to change current accounts every 12 months or so. You can hunt for the best deals on comparison website and will usually be rewarded for your efforts with cashback repayments and higher interest rates. The whole process is much easier and more automated than most people would guess. I wouldn't hold too much money in your current account at any one time. You can get better rates of return elsewhere. Hold enough money in your current account to cover current spending (with a couple of extra hundred to be safe).

Readers, everyone needs a current account but how much should you be holding in there at any one time? How often should you change your current account?



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1 comment

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