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What's the difference between a current and a savings account?

If you’re opening a new bank account, it’s worth exploring the differences between current and savings accounts.

They each have specific purposes and features. Current accounts and savings accounts both allow you to keep your money in a safe place, but you may find that one suits your needs better than the other. 

What is a current account?

A current account is one of the most common types of bank accounts. Also called a transaction account, it allows you to take care of your daily banking requirements and manage your spending and income. 

What is a current bank account useful for? You can pay your bills, spend with your debit card, withdraw cash from an ATM, have your salary paid into it, and more. 

It’s also easy to manage, through online banking or secure mobile apps. 

There are other benefits of a current account.

  • Make payments easy: you can set up Direct Debits or standing orders for bills and other regular payments.
  • Stay in control of your money: you can check your balance at any time and from anywhere. Most banks also have alerts that will tell you about transactions or if you’re going into overdraft.
  • Build your credit history: if you use your current account responsibly, such as making payments on time and not going over your balance, you can build a credit score.

There are different types of current accounts, starting from a zero balance current account to ones that offer more features and benefits. Some of these features need a minimum monthly salary or minimum balance.

What is a savings account?

So, you have a current account for your day-to-day banking needs, but what if you have some money left over at the end of the month? Would you rather leave it in the current account, or put it into an account where you can earn better interest? 

A savings account allows you to put the money you don’t immediately need into a safe place where you can make it grow faster. But unlike other investments, it’s normally easy to access should you need it.

Some savings accounts may have restrictions on making withdrawals, so it’s good to think about your needs before opening one. Also, remember that you may be charged tax on the interest earned and that you don't get a chequebook with a savings account.

There are different types of savings accounts, from basic easy-access accounts which allow you to withdraw your money at any time, to fixed-term accounts. These offer a fixed interest rate but you have to put your money away for a fixed time, and there may be restrictions on how you can access it. 

Some, like the E-Saver Account, have no minimum balance requirements and no monthly fees.

Choosing between a current and savings account

The main differences between a savings account and a current account come down to the purpose they serve and the amount of interest you can earn. 

A savings account is designed to encourage you to grow your money. A current account is intended for frequent transactions and convenient access. As a result, the interest rate you earn on a savings account is typically higher than what you’d get from a current account.

If you’re struggling to choose, try to think about what you’ll primarily be using the account for.

If it’s purely for your daily banking requirements and you don’t intend to use it for savings and investments, then a current account will work for you. But if you want to grow your money and still have easy access to it, then a savings account will allow you to transact and earn interest at the same time.

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