Understanding your current account
Almost all of your money life runs through your current account. A good one costs little, is safe and lets you leave at any time. That's usually all you need.
Your salary lands in your current account, and rent, phone contract and shopping go out of it. It's the account you use most and think about least. Yet it can easily cost 100 euros or more a year without you noticing.
What an account costs
The costs hide in several places. There's the monthly fee, and often extra charges for the debit card, a credit card, paper transfers or withdrawals at other banks' cash machines. Some banks charge for every single transaction.
An example: Jonas pays a monthly fee of 6.90 euros plus 12 euros a year for his card. That's about 95 euros a year. Over ten years it adds up to almost 1,000 euros, for an account that would cost little or nothing elsewhere.
Many banks only offer a free account on conditions, for example a monthly incoming payment of at least 1,000 euros. If your salary stops for a while, say during parental leave or between two jobs, the account suddenly gets expensive. So read that condition as carefully as the fee itself.
How to spot a fair account
- You know the total yearly cost as one single number.
- The bank is based in the EU and your money is covered by deposit insurance up to 100,000 euros.
- You can get cash without paying a fee every time.
- The overdraft rate isn't much higher than at other banks, even if you never plan to use it.
Whether the bank has a branch in your town is a matter of taste. If you like talking to someone in person, you'll often pay a bit more. That's fine as long as it's a conscious choice.
Switching is easier than you think
Many people stay with their first bank out of habit. Yet the new bank helps you move. If you ask, it tells your employer, moves your standing orders and redirects your direct debits. In the EU that's required by law. Keep the old account open for another two or three months in case a payment slips through.
If you have no fixed address or have been turned down by other banks, you still have a right to a so called basic account in the EU. A bank may only refuse it for a few reasons set out in law.
The rules for current accounts largely come from the EU Payment Accounts Directive of 2014. It applies in every EU country and harmonised three things.
First, every bank has to hand you a standardised fee information document before you sign. It looks the same in every country so you can put accounts side by side. Once a year you also get a statement of what you actually paid over the past year. That statement is the most honest number there is about your account.
Second, the directive sets up a switching service. In Germany the move has to be completed within twelve business days once the new bank has all the documents. When you move to another EU country, the old bank at least has to give you a list of all standing orders and direct debits.
Third, there's the right to a basic account. It has all the key functions, meaning deposits, withdrawals, transfers, direct debits and card payments, but no overdraft. Its fees have to be reasonable. The directive doesn't apply in Switzerland, where banks set their own account types and switching rules.
On safety: statutory deposit insurance protects 100,000 euros per person and bank. If a bank fails, the money has to be paid out within seven working days. What matters is the bank that actually holds your contract. Some apps are only a front end and the account sits with a partner bank. You'll find its name in the contract documents.
Summary
- Add up all account costs for a full year, then offers become comparable.
- Read the conditions for a free account as carefully as the fees.
- The new bank helps you switch, that's required in the EU.
Did you get it?
Why is it worth adding up account costs for a full year?
Because small amounts like the monthly fee, card fee and transaction charges only show their real size when you add them together.
What happens to standing orders and direct debits when you switch banks?
If you ask, the new bank moves them and informs the payees. In Germany this has to be done within twelve business days.
What is a basic account?
A current account with all the key functions but no overdraft. Almost everyone in the EU has a right to one.
Sources and further reading
- Directive 2014/92/EU on payment accounts (comparability, switching, basic account). View source ↗
- BaFin, basic account and switching (German). View source ↗
- Directive 2014/49/EU on deposit guarantee schemes. View source ↗
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