Best Bank Accounts Free £100 + £5/month or 0% overdraft

Find out your right account type

Banks are constantly trying to confuse us with new charges, incentives and ‘terms & conditions’. In order to foil their subterfuge and make sure you get the bank account that's cheapest, or most rewarding, for you, it’s vital to work out what kind of customer you are.

Are you constantly in-credit, or always overdrawn? Or do you move between one and the other through the course of a month? Take a look at your last few statements to get the true picture of your banking; this’ll tell you which type of account to plump for...

Switching bank account is easy & profitable

A few years ago, banks gained the ability to automatically transfer standing orders and direct debits for you, making switching much easier. It means your main task is to notify people who pay into your account; especially your employer. Yet even so, always keep the old account open for a good few months after the switch just in case something’s been missed.

Switching will make you £100s

If you're thinking that switching account won't make much difference, you're wrong. While banking is 'free', this only applies if you're in credit.

Yet in reality, most banks pay you a pitiful 0.1% interest and then loan your money out to others in the form of overdrafts at 20%. Thus, even if you like the customer service, ask yourself, "Is it so good I'm willing to effectively pay £100s a year in lost benefit?”.

Important things you should know

The choice isn't just between good in-credit and overdraft rates. You must pass a credit score, plus most accounts require you to deposit a certain amount every month. This needn't stay in the account, nor must you be in-credit. This effectively sets a minimum earnings threshold eg.

£1,000/month ‘pay-in’ = £14,200 pre-tax salary

As then your take-home pay fulfills the pay-in rules. From here on, we often convert min pay-ins into min earnings. With work, you can cheat this rule; withdraw some money each month and pay it back in e.g. if you earn £900 a month, pay your salary in, withdraw £100 and re-deposit it.

It's also worth noting, sometimes you can get extra cashback signing up via special websites, see top cashback sites for a full explanation and how to find which sites pay most.

Best Buys: Top if you’re always in credit

If you never enter your overdraft, focus on earning the most interest on your positive balance. Yet most accounts only pay interest on a limited amount, so sweep the rest of this cash into the Top Savings Accounts to maximise your interest.

There's no best-buy for everyone. The right account for you depends on your salary, average balance and what account you've got now.

The big five deals are listed below in salary order, yet don't assume higher minimum salary automatically means it's best for you. Scroll though all the options to pick the right one for your circumstances.

Min salary £23,100 (pay in £1,500/mth)

Min salary £14,200 (pay in £1,000/mth)

Min salary £9,800 (pay in £750/mth)

Min salary £6,050 (pay in £500/mth)

Specialised Alternatives

There are a number of other options that may suit.

• Got savings or mortgage with Santander?
  
  If you have a Santander savings account with over £10,000 in, or a mortgage or investment product with it, you could apply for the Santander Zero* account, offering all accepted applicants fee free overseas spending on its debit card - see Cheap Travel Money guide for how this compares.
  
• Can't pay in a set amount each month?
  
  The Halifax Reward account doesn't require regular monthly deposits, but unless you sometimes pay at least £1,000 in, you'll never earn any interest.
  
  This account requires you to have a good credit score, so is suitable for those who have wealth but not those struggling. If that's the case do also read the Basic Bank Accounts section or the Credit Unions article.
• Have a high balance?
  
  If your current account balance is consistently high, then apart from Santander's 5% current account in the Top Accounts section you can't beat the current easy access savings accounts. So you're better off sweeping extra cash into a top paying savings account which pay decent interest on the whole balance.
  
  

If you have a large balance don't forget about savings safety

As we're discussing high balances, it's worth knowing you get the same protection as in savings if a bank went bust - the first £85,000 in each of these is guaranteed safe by the UK government read Savings Safety guide for full details.

You shouldn't be keeping anywhere near that in one of these though, as the rates are rubbish! If you have a high balance - perhaps due to a house sale - try to sweep the money into a Top Savings Account as soon as you can.

Best Buys: Top if you go overdrawn

Overdrafts are debts; and often they’re much more expensive than credit cards, so avoiding being overdrawn is always a good policy. The costs below strictly refer to going overdrawn within your limit, if you go beyond that you’ll pay through the nose (see avoid bank charges section).

If you are overdrawn, don't just tackle the symptoms, also try using the free budget planner, giving yourself a money makeover to tackle its causes and checking the tips to avoid charges in the Bank Charges Compared tool.

How to cut overdraft costs

One option is to get the 0% overdraft above, however for many people, the cheapest option is actually to shift the debt to a cheap credit card. Usually the easiest way to do this is by using a simple technique.

• Step 1. Apply for a cheap 0% card for spending on.
  
  Apply for a 0% card for spending on so that everything you spend on that card is then at a cheap rate.
• Step 2. Use that credit card instead of a debit card/taking cash out.
  
  Now use the credit card for your normal day-to-day spending, making only the minimum monthly repayments on it. This means your monthly income pays off your overdraft as there's no money being taken out of that account. Instead the debt builds up on the credit card, but at 0%.
• Step 3. Stop using the card once your bank account is in credit.
  
  Doing this is technically the best solution for those with self-discipline, you can’t allow yourself to spend more on this card or build up more debt. You should stop using the card once your account is in credit. The aim is to try and pay the card off by the end of the 0% period, or at the worst, shift it to a cheap balance transfer deal.

A tip to save you cash if you mix ’n’ match.

If you jump regularly between being in-credit and using your overdraft, it's sensible to keep as much money in your account for as long as possible. Therefore, if you’ve the self-discipline, set all your household bills, direct debits and other standing orders to leave your account towards the end of your working month, artificially boosting your balance.

Yet if you fear this may lead to money needed for bills being spent before it’s needed, don’t take the risk. Also, take a read of my Budgeting article to help manage your cash flow.