Current vs. Savings Accounts: What is the difference?

People often want reliable ways to manage their money for different needs and goals. Current and savings accounts can play a role.

This article includes tips, suggestions and general information. We recommend that you always do your own research and consider getting independent tax, financial and legal advice before making any important decision.

In this article, learn what people may use each account for, their key differences, and why it may be useful to own both kinds of accounts.

What is a current account?

Current accounts are generally considered to be 'everyday' accounts that people use for frequent financial needs. Think of cash withdrawals, bank deposits, food shopping, and receiving regular salary payments from an employer. Approximately 96% of adults in the UK had a current account as of May 2022.¹

With a current account, people can receive government payments and make payments for recurring expenses, such as rent, mobile phone and internet bills. They may also be used to pay for other living costs, such as media subscriptions and energy bills.

Current accounts enable people to:

• Use a card to withdraw cash from ATMs, at bank branches, or in shops that do 'cash out'
• Deposit coins, notes, cheques, and bank drafts when visiting a branch in person
• Make transfers in and out of any linked accounts that they or others own
• Send money to other bank accounts in the UK or abroad
• Generally pay for everyday expenses and bills

People who need to open a current account can do so at a local bank branch or by visiting a digital-only bank's website. They are typically free to open.

Here are some other potential factors to consider about current accounts:

• Overdrafts: Many current account products provide optional facilities that people can access for a fee. One example is an overdraft. Overdrafts allow people to spend up to a pre-agreed amount after their account balance hits zero.
• Interest rates: Current accounts differ from savings accounts because they normally don’t pay interest on the account's balance.

What is a savings account?

Approximately 70% of UK adults had a savings account in 2022.¹ Savings accounts can be similar to current accounts, but they differ in some ways.

Saving accounts may enable people to:

• Put money away for future plans like houses, renovations, cars, school fees, or holidays
• Share savings goals with others through joint savings accounts
• Earn interest on the account balance, based on short and long-term goals
• Lock away funds until a future date, so they cannot be withdrawn until later

Many savings accounts may not come with a linked debit card, given they are designed to help people save money and not spend it on a frequent basis.

Here are some other potential factors to consider about savings accounts:

• Different types: Different kinds of savings accounts include standard savings accounts with variable interest rates, high-yield savings accounts, with eligibility criteria, and fixed-rate savings accounts and term deposits.
• Interest rates: Financial institutions may offer different interest rates for different kinds of savings accounts. Rates may be subject to change at short notice.
• Needs based: Many Britons typically have an emergency savings fund or a 'rainy day' savings account. On the other hand, some savings accounts are designed with a longer horizon in mind. For example, term deposits may enable savers to 'lock away' a balance for as long as five to 10 years.
• Time spans: Some institutions may forbid people from removing funds before waiting out a certain period. Others may charge fees to withdraw funds before a pre-agreed date.

People who need to open a savings account can do so at a local bank branch or by visiting a digital-only bank's website. In some instances, individuals may need to have already opened a current account with the same institution before opening a savings account.

Why consider getting both types of accounts

When managing a person's finances, many people find it useful to have both kinds of accounts. People may use an existing current account to pay for living expenses while designating a savings account to put a few pounds away for a rainy day — or to work toward holidays, cars, or property.

It’s not uncommon for Britons to have more than one savings account, too. For example, a person may regularly transfer money into an emergency savings account, their rainy day savings account, and even another account for larger purchases or investments.

Staying on top of finances

Current accounts are those that people tend to use on a near-everyday basis while savings accounts typically come with greater self-imposed restrictions that help people achieve short and long-term personal budgeting goals.

Having both a current account and savings account may help people to:

• Ensure they have sufficient funds to cover recurring expenses
• Avoid overspending by preventing some funds from everyday use
• Separate immediate and future costs into separate 'buckets'
• Start and maintain a habit of saving every week or month
• Create a safety net for lump sum costs and emergencies

Get more tips on budgeting and saving money.