Make the most of your current account

The current account is the workhorse of our personal finances. Most of the time it sits there, costing us nothing, making us nothing. It is just the gatekeeper letting in our pay. Letting out our direct debits. Processing the odd cheque. A bit of financial machinery we don’t have to worry about. Not any more.

Suddenly the banks are after our current account. We are the seller in this auction for our business. Interest of 5.2% on your credit balance I am bid in song by Halifax. Now, do I hear six? Yes, Lloyds TSB bids 6%. Can I see seven? Is that a bid of 7%? No? Telephone bid from Spain and it’s Abbey coming in at 8%. Any advance on 8%. New bidder, I have a new bidder at 8.5%. Any advance? Goinggone. New customer sold to Alliance & Leicester for 8.5% interest (terms and conditions apply).

So what is happening? Banks that used to think themselves generous to pay us 0.1% are now falling over themselves to attract our custom by paying rates of interest that make savings accounts look mean.

But beware the catches:

● Catch 1: You may need a minimum income to open one. That can be up to £1,000 a month. Plus you will have to make it your main account with your pay going in.

● Catch 2: The advertised rate will apply for a fixed period only. Usually a year. After that the rate will fall. Sometimes plummet.

● Catch 3: The rate will apply only up to a certain sum – anything from the first £1,000 to the first £2,500. After that it will revert to the standard 0.1%.

● Catch 4: Some of these accounts charge a monthly fee. If so that will cost you far more than any interest you may earn. Ignore the blandishments of a small free overdraft or holiday insurance. The benefits are never worth the cost.

But never mind. If you are aware of the restrictions why not switch to the best current account you can find now? A code of practice means your direct debits and standing orders should be moved smoothly and automatically within a couple of weeks. But you will normally have to tell your employer and anyone who pays you money regularly.

And if the rate plunges in a year, switch again. Because you’re worth it!

Paul Lewis is a freelance writer who presents Money Box on BBC Radio 4