When you begin shopping around for a current account, many unfamiliar terms may arise. You may not know the difference between an AER and an EAR when you begin your account search, but these terms are critical for choosing the best account for your needs.
Fortunately, we have the basics of current accounts outlined in this article so you can educate yourself properly about the various current accounts available.
AER (Annual Equivalent Rate)
The AER tells you how much you will earn on your in-credit balance on an annual basis. When you are comparing AERs on current accounts, the higher the rate, the better it is for you. However, it is also important to note that the better rates may only be fixed for one year. At that time, you may want to shop around again to ensure you have the most competitive rate possible.
EAR (Effective Annual Rate)
The effective annual rate is the amount the bank charges you for going over your overdraft limit. In this case, you want to shop for the lowest rate possible, particularly if you anticipate that you might exceed that limit. Some banks and building societies are offering a 0% rate for the first year to attract new customers.
Overdraft Facility
Overdraft is used to protect you from overdrawing your account through debits or checks. Many current accounts offer overdraft facility to customers who qualify based on age and credit rating. The amount of the credit line and the interest and charges can vary greatly. Shop around for the overdraft facility that will offer you the best deal based on how you will use the account.
Cash Card
This card is strictly used to access cash machines within the UK and can be used to make withdrawals and check balances. Cash cards aren’t typically the best choice for customers who frequently travel abroad, but they can be a good option for customers who don’t want a debit card and are too young for a checkbook.
Direct Debit
For customers that have regular monthly payments, a direct debit option is an excellent choice. This feature allows you to set up regular payments to be directly taken from your account, rather than sending a check through the post every month. Most banks offer a direct debit option on current accounts at no additional charge, as long as it is done within the UK market.
Current Account Packages
Some banks will advertise “package” deals or premium accounts that include a variety of features in a single current account. These packages might include everything from overdraft facility to travel insurance.
Before you choose a current account package, consider each feature included to see if you will actually get your money’s worth. If not, you may be better off opening a basic current account and adding the features you want.
Current accounts come in a variety of shapes and sizes, and the variety can make it confusing when shopping around for the best deal. By familiarizing yourself with some of the common terms and features included with current accounts, you will be in a better position to find the best account for your needs.
