The top 8 current accounts!

You don't have to put up with rip-off overdrafts or appalling in-credit interest rates. Jane Baker reveals which banks are offering the best current accounts at the moment, whether you're in the red or the black!

There hasn't been much good news for current account customers lately. Last week, the Supreme Court overturned previous rulings on unfair bank charges and put a stop to the current OFT investigation. This dealt a huge blow to 1.2 million people who have claims on hold. Check out Neil Faulkner's article Bank charges: The banks have won to find out more.

The banks have certainly been chopping and changing overdraft charging structures a great deal throughout the year. This makes it very difficult for you to compare the most competitive deals. But help is at hand with my guide to the best current accounts on the market.  

Current account switching is still not as widespread as I would like. In fact, according to financial research company Defaqto, only 6% of us move to a different bank every year. This is a big mistake because there's a huge difference between the best and worst accounts.

So, let's take a look at the cream of the current account crop:

The best current accounts if you're in the red

If you tend to run your account into the red each month, then it's time to take some decisive action by joining our Destroy your debt goal. Here you'll find all the advice you need to banish your borrowings forever. If your debts are proving more stubborn than you would like, you should also check out our video on where you should go for debt advice.

In the meantime, you can lighten the load by moving your current account to a bank with more favourable overdraft terms. Here are my top picks:

1. Alliance & Leicester Premier Direct Current Account - This account offers a fantastic interest-free overdraft for 12 months. The maximum overdraft limit is £2,000. To qualify you'll need to be over 21 and able to pay in at least £500 a month. If you still use your overdraft after a year, you'll be charged a usage fee of 50p a day up to a maximum monthly charge of £5.

2. Alliance & Leicester Premier Current Account - You'll get the same 0% EAR overdraft facility for a year as the Premier Direct version. The same usage fees will also apply after the introductory period has ended, and again, you need to pay in £500 a month. However, with this account, if you transfer all your direct debits from an existing current account by December 13 you'll get a fantastic £100 cashback bonus. Perfect!

3. The Abbey Bank Account Preferred Overdraft Rate - Abbey is offering a 0% EAR overdraft for 12 months and will match your previous overdraft up to £5,000 (depending on your circumstances). But you must fund the account with at least £1,000 or the rate will shoot up to a horrific 19.9% EAR. After 12 months you'll be charged 12.9% EAR whenever you slip into the red.

The best current accounts if you're in the black

If you're in the far better position of having a large in-credit balance, you may be siphoning off the excess into a top easy access savings account at the end of every month. There's absolutely nothing wrong with that. But did you know you can earn even better rates by choosing one of these top accounts?

4. Alliance & Leicester Premier 21 Current Account - Those aged 16 to 20 can earn a fixed rate of 5% AER for a year on in-credit balances up to £1,000. After a year the rate drops to 1%. Balances over £1,000 will earn a rate of just 0.10%. Account holders must pay in their earnings which can include wages, allowances or any other money received on a regular basis.

5. Alliance & Leicester Premier Direct Current Account - As well as being a great choice if you go overdrawn, this account is also perfect if you're usually in the black. You'll earn a top fixed rate of 6% AER on balances up to £2,500 for a year. Like the Premier 21 version the rate drops to 1% AER after 12 months, while balances over £2,500 earn 0.10% AER. Don't forget, you'll need to pay in £500 or more every month to be eligible.

6. The Abbey Bank Account Preferred In-Credit Rate - With this account you'll earn a fantastic rate of 6% AER for the first 12 months on balances up to £2,500. After a year the rate falls to 1% AER while balances over £2,500 earn 0.10% AER. Even better, if you you have children aged between 11 and 18, they will receive a preferential rate of 5% AER on balances up to £500 if they open a Youth Plus Account.

7. Halifax Reward Current Account - Quite simply, rather than earning a rate of interest, you'll get a fixed amount of £5 a month as long as you fund the account with at least £1,000 a month. Even if you go overdrawn you'll still get a £5 reward (although overdraft charges will apply).

One to watch out for

You'll probably have noticed Santander has really taken the lead in current account market with several best buys from its Abbey and Alliance & Leicester brands. It seems the bank plans to continue doing so in 2010 with the launch a new account in January which is open to anyone who already has a mortgage with the bank* or opens one. This is what will be on offer for customers who stay in credit:

8. Santander Zero Current Account - With this account you'll earn a great a fixed rate of 6% AER for a year on in-credit balances of up to £2,500 as long as you pay in £1,000 each month. The account is also good for people who travel overseas with a fee-free debit card for spending abroad, no ATM charges worldwide and no foreign exchange fees.

Finally, if you have a question on how to get the best out of your bank, why not check out Q and A where you can ask other lovemoney.com readers for their top tips.

*The Santander Zero Current Account will be available to new and existing mortgage customers with Abbey or Bradford & Bingley from January. Alliance & Leicester mortgage customers will become eligible when the lender rebrands to Santander later in 2010.

More: The top six reasons to switch your current account | Unfair overdraft fees must go!