What to look for in a bank account

Overdraft rate: The most important feature to consider if you are ever likely to be overdrawn is the overdraft rate. Many current accounts pay interest on your credit balances, but this is likely to be wiped out several times over if you go overdrawn. Nationwide charges just 7.75% for authorised overdrafts. This compares with 17.69% at NatWest and 15.9% at HSBC.

Overdraft buffer: Many banks allow a safety margin in case you accidentally go overdrawn, perhaps after misjudging cheques-clearance times, without paying charges. These can range from as little as £10 to as much as £250.

Unauthorised borrowing rate: This is the area of contention for the consumer watchdogs, as the banks impose eye-watering charges, which customers are now starting to challenge in the courts.

Nationwide, for instance, charges 24.9%, while Abbey charges 28.7% and Halifax and Lloyds TSB 29.8% for exceeding your overdraft limit. Some banks will also charge you a flat rate penalty for each day you are over your agreed limit, in addition to the interest.

However, if you don’t fancy yourself as Rumpole of the Bailey, you might prefer to heed the rates and avoid unauthorised borrowing in the first place.

Anyone outraged by the sums the banks often charge might like to consider that the heart-stopping penalties imposed by the bank, after it has honoured cheques and direct debits that take the customer over their agreed limit, could be the lesser of two evils. The alternative would most likely be the greater embarrassment to the miscreant of having cheques bounced and, in the worst cases, leaving the customer with a damaged credit record.

Local branch: If you need to pay in lots of cheques and cash, it makes sense to use a bank with a local branch, or you will end up paying for transport to the bank for cash and postage for cheques. If you don’t do cash transactions and you don’t mind posting cheques, or you can transfer money online, consider an online bank, which will probably give you better terms. Most of the high street banks will allow you to manage your account online, but you may get better terms and rates with a purely online bank.

Local fee-free ATM: Is there a non-charging ATM near you? Banks will normally offer fee-free withdrawals to customers of other banks – it is generally the independent ATM operators that charge. However it is worth checking that you can get your hands on your cash free of charge at a convenient location.

Interest rates: If you are sure you will always be in credit, then looking for an account that pays more than the usual nugatory 0.1% paid by the major banks could be worthwhile. Remember, though, that the interest is taxable, so, for the amount usually sitting in a current account, the advantage of a higher rate of interest over a lower one is going to be small. If you have large amounts of cash lying around, consider using a savings account instead – possibly an ISA – which will pay your interest tax-free.