Whether you’re usually in the black or the red, we’ve got the perfect current account for you.

If you normally have a healthy balance, any current account which pays a derisory rate of interest – or worse still pays no interest at all – is a no go area for you. In the same way, if you tend to go into the red regularly, an account which charges an extortionate overdraft rate is one to avoid too.

In this article, I’ll weed out the best current account for you, no matter how you manage your money. So, let’s kick off with a look at the top choices for account holders who always have a decent credit balance:

In the black corner

Current accounts aren’t usually known for generous returns on credit balances, with many offering truly appalling rates. HSBC has caused controversy by scrapping interest entirely on its Bank Account Plus – a packaged account which charged customers a whopping £12.95 a month.

But, surprisingly, the best current accounts are still offering credit interest rates which are even higher than the most competitive savings accounts.

I have two contenders in mind here: Santander brands, The Abbey Bank Account – Preferred In Credit Rate and the Alliance & Leicester Premier Direct Current Account.

These accounts have been the market leaders in this area for quite some time. So, it’s great news that both have recently stepped up the credit interest rates. Current account holders can now enjoy a fantastic rate of 6%. Better still, this rate is fixed for a year.

But to get these great returns, there are one or two catches:

The Abbey account must be funded with at least £1,000 a month, while the A&L account requires £500 a month. And, you’ll only earn the market-leading rate on balances up to £2,500.

And whatever you do, don’t forget that after the year-long fixed period has passed, the rates will plummet to just 1% (and 0.10% on balances over £2,500). So you may want to shop around again for a new current account in a year’s time.

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Sweeping

If you don’t want to switch your current account, think about regularly sweeping any excess money into a savings account which pays more interest.

Some current accounts, such as First Direct, offer an automatic sweeping facility where any spare cash above an agreed limit is moved over to a higher rate savings account. This can be done on a daily or monthly basis, but it only makes sense if the rate you then earn is competitive.

Now let’s take a look at the best current accounts if you often have a negative balance.

In the red corner

Overdrafts are normally a very expensive way to borrow. In fact, overdraft rates of up to 20% EAR on some high street bank accounts are not uncommon. And it looks like the situation is getting even worse with banking giant, Barclays and super building society, Nationwide both hiking up the cost of overdraft borrowing this month.

But, luckily, they don’t always have to cost you an arm and a leg, because there are a couple of accounts which offer attractive interest-free overdraft facilities. Once again, Abbey and A&L have struck gold with excellent accounts for those of you who are often in the red.

The Abbey Bank Account – Preferred Overdraft Rate offers a totally interest-free overdraft for a year. If you switch to Abbey, your previous overdraft facility will be matched up to £5,000. But be warned because after this period the rate shoots up to an astonishing 19.9%, making it an extremely costly debt. So you might be better off using a 0% balance transfer card to clear your balance instead, as you then have 16 months to clear your debt.

The A&L account also offers an interest-free overdraft for a year with a maximum limit of £2,000. After this time a daily usage fee of 50p will apply up to a maximum of £5 a month, so again, you should try to get your account back in the black before the year is up.

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A third option is available for anyone switching to Barclays. If you move your existing account to the Barclays Bank Account, Current Account Plus, Additions Active or Platinum Banking, and you pay in at least £1,000 a month, you’ll benefit from an interest-free overdraft for a year.

After this time the overdraft must be repaid or a new facility agreed, which could trigger a rate of up to 19.3% depending on which Barclays account you choose.

(Note that matching your previous overdraft facility when you switch accounts is subject to status.)

Smaller overdrafts

The next account I want to look at is from First Direct. The 1st Account offers a great interest-free overdraft facility as long as you don’t go too far into the red. Basically, if you can keep within a £250 overdraft buffer zone, you won’t be hit with any interest charges. Agreed facilities over £250 will be charged at whopping rate of 15.9% – so don’t go there!

First Direct has been repeatedly praised by lovemoney.com experts and readers for its fantastic customer service. Plus, you’ll earn yourself a lovely £100 bonus when you switch your account – can’t be bad! But, on the downside, the account must be funded with at least £1,500 a month.

On a final note, remember many banks now offer special switching services, so moving your current account to one of these beauties is as painless as possible.

What are you waiting for? Take a big step forward towards sorting out your finances – and get switching today!

This entry was posted on Wednesday, June 24th, 2009 at 12:00 am and is filed under Finance . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.