BANK AND GENERAL ACCOUNTS

Welcome to our Information section on Bank Accounts. Here, we aim to clarify different types of accounts, how they work and what their uses are. If you are considering a new bank account or perhaps this is your first one, then read our guide for some basic and clear information.

What is a Bank Account?

A bank account has many functions, primarily it is there for people to store money. You can open one at:

  • banks
  • building societies

There are also special types of bank accounts at credit unions and at the Post Office®.

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What are the Benefits of Bank Accounts?

Most UK adults nowadays have a bank account. Having one means it is easier to pay for bills or online goods and services you can receive money – such as your regular salary/wages, or benefits and pension.

You can also use your bank account to receive money from people who are overseas. A bank account can also help you to save money or put it aside for a particular purpose, such as an emergency situation or large purchase.

Money held in a bank account can also be used to save and store up interest – making it grow over the years.

Here are the main benefits listed out:

  • Making payments for goods and services
  • Receiving money
  • Cash withdrawals
  • Setting up payments such as Direct Debit/Standing order
  • Saving money
  • Collecting interest

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What Type of Bank Account do I Need?

Before you opt for a bank account, you need to decide which one is the right one for your needs. Below we have listed different types of bank accounts so you can get an overview and maybe some assistance for your decision. If you already know which type of bank account you're looking for, simply go straight to the Compare Bank Accounts section on Which Way To Pay.

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Basic Bank Accounts

This is the most straightforward account that your bank or building society will offer. Basic Bank Accounts are usually offered to customers who have a poor credit history. Therefore, if you have applied for a Current account and been offered a Basic account, it is very likely that your credit score was not high enough for more. A Basic account is very straightforward and doesn't carry many extra features.

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Current Accounts

Current accounts are offered by most banks and building societies and you can access yours in a range of ways – by visiting your local branch, by post, online or even telephone. You are most likely to be offered a Debit card to use with your current account to make payments and cash withdrawals.

You may be offered an overdraft with your Current account. This may be offered immediately when you open the account, or you may be offered it after a period of having the account open. The amount of "authorised overdraft facility" you are offered will be decided by your bank and will depend on your personal circumstances.

You may be offered a credit card in conjunction with your Current account – this, again depends on your personal circumstances. For more information on credit cards, please visit our dedicated section in the Information Library.

You are most likely to be offered a cheque book in conjunction to your current account – this is a useful way to pay for certain items but cheque books are used less and less nowadays. Indeed, there is even an indication that they may be phased out altogether.

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Packaged Accounts

A Packaged account is essentially a Current Account but with extra benefits – in return for a monthly fee. They are fairly popular in the UK and around a quarter of all Current Accounts available now are Packaged accounts.

Here are some of the benefits that you might receive:

  • Travel insurance
  • Breakdown cover
  • Better savings rates
  • Share dealing services
  • Assistance for writing your Will

The amount you are charged for a Packaged account depends on the level of benefits you receive but it can be up to £300 a year. Note: some banks have begun to automatically upgrade customers to a packaged account. Make sure you keep an eye on this in case you are not interested in a Packaged account.

You can decide if a Packaged account is right for you by checking what benefits are offered – many find that the offers of free travel insurance for round the world is ideal if you travel up to two or three times a year.

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Savings Accounts

Savings accounts are offered by regular banks and financial institutions. They provide a way to build up interest on a portion of money which is set aside in the account and may not be accessed directly as money.

In other words, you can't simply pull out a card and access cash from a savings account via an ATM. You may be offered a passbook or access to money via a cash machine, but you will not be able to have a credit card connected to a savings account.

Most regular savings account carry a variable interest rate. That means, the rate can (and will) change according to the base rate that the Bank of England sets. It can also change according to the stance of your bank. Therefore, it is vital that you keep an eye on the interest rate of your account. There is an alternative to this thanks to Fixed Rate accounts (see below).

If you want to save up money for a purchase in the future (children, house, car, holiday) then a savings account can help you.

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Types of Savings Account:

Cash Individual Savings Account (ISA)

A cash ISA is essentially a tax-free savings account into which every UK adult can put up to £3,600 every tax year (April to April). This is a great place to start if you are interested in saving and gathering interest on your money.

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Fixed Rate Accounts

A fixed rate savings account carries an interest rate which is fixed for a set period of time. While that rate is guaranteed, you can't access your money during that time.

away for a period of time (usually 1 to 3 years). Given the fluctuation of interest rates, you are putting your money at a certain level of risk by locking it away for a certain length of time.

Make sure you shop around for a good rate offer before opting for a Fixed Rate account – there are always competitive offers available.

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Offshore Savings Accounts

Once aimed at those with large incomes, offshore savings accounts allow Britons to deposit money outside the UK. Many high street banks and building societies offer offshore accounts. For UK customers, an offshore savings account is usually run from the Isle of Man, Channel Islands or Ireland. There is usually a minimum deposit required of around £10,000 and the accounts are often multi currency which means you may deposit money in sterling, euros or US dollars and withdraw money or write cheques in any country. Interest is paid gross and no income tax is deducted.

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Business Account

A business bank account is offered by many mainstream banks and building societies for small to large businesses. The account can be used to make payments to merchants and staff, to access money for anything related to the business and to pay into from profits made by the business.

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Student and Young Person Accounts

Student and Young Persons accounts are for young people and students to access money and take care with their finances. In many cases, a bank will automatically offer a Student account to a young person who has commenced their studies and may offer an interest free overdraft facility. They may even offer a credit card in conjunction with the account.

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Graduate Accounts

When a person has finished studying, their Student account will usually automatically change into a Graduate account after a specified period. They are aimed to help new graduates to manage their money although interest may begin to be charged on the overdraft.

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Foreign Currency Accounts

Foreign Currency accounts are designed to help a person manage foreign currency in a special account. The best offers for this kind of account are usually provided by specialist Foreign Exchange banks or brokers. Set up an account once and benefit from excellent exchange rates each time you need to send money between different currencies.

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Sharia-Compliant Accounts

This is a current or savings account which is created to run in line with Islamic Sharia law. Islamic banking is a special system of banking which works in accordance with the principles of Islamic (Sharia) law. Islamic economics have been developed so that practising Muslims may bank according to their faith. For instance, Islamic Law prohibits the payment or acceptance of interest fees. Both private and commercial institutions use Sharia-Compliant Banking and accounts.

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Joint Accounts

You can open a Joint account with one or more other people (often this will be a spouse or life partner). The bank/building society will explain the features of the account – extra rights or responsibilities. They should explain areas like whether one of the account holders may withdraw the entire account balance without the permission or knowledge of the other account holder. The should also clarify what happens if your relationship with the other account holder(s) ends.

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Opening an Account

Before you open a bank account, you will need to decide which one suits you. If you haven't joined a bank or building society yet, you may first decide to choose one of them first, based on the accounts they offer. Once you are satisfied, you will need to visit your nearest branch.

Tell a bank representative that you intend to open an account and they will take you aside to give you necessary details and information. This will include:

  • Their service
  • Costs involved
  • Any interest rates that the bank will pay you on money in the account
  • Terms and Conditions
  • Spending limits/Overdrafts
  • Any relevant information

If you have any questions or are unclear at this point, feel free to ask them.

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What Do I need to Open a Bank Account?

In order to open a bank account, you will need to provide:

  • Proof of Identification

This is a legal obligation for all banks and building societies. Why?

  • To prevent criminal activity such as money laundering
  • So that they may record and keep information about you and your account
  • So that they may keep your account safe and secure

If you are unable to provide a passport or driving licence, they may be able to accept an official government document that proves your identity – for example, an official government letter confirming your identity or a letter from a government warden, refuge center or care home confirming your identity.

If you are a refugee, asylum seeker, prisoner/on probation or an international student then you may be able to provide alternative proof of identity. Clarify this by visiting the bank website or asking a bank representative.

(For more information on money laundering, please view our Information Library on Money Laundering).

  • Proof of your Address

Usually, a utility bill with you name and address on it will be sufficient as proof of address. The bank or building society might accept further letters/paperwork to prove your address, simply ask to find out what these are.

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Will I be Subject to Credit Checks?

When you apply for a bank account, credit card, new overdraft or an extension to your existing overdraft, you may be subject to a credit check on your application.

Information on your financial history – i.e. any loans you may have had in the past, how regularly you pay for bills and loan repayments, even the area you live in etc – are held by a credit reference agency. The bank/building society can access this information when they process your application. In addition, points will be awarded to the information you provide.

This information will be collected up to decide how much of a risk you pose to your bank or building society. After all, in the case of a credit card or overdraft they are lending you money and will need to know if you can pay them back.

You will be given an overall pass mark. This helps the bank, building society of lender to decide:

  • Whether or not to give you a credit card or a loan
  • What credit limit/overdraft limit to give you
  • What interest rate to charge you

So – the better your credit score is, the better your chances for getting a good deal. If your credit rating falls short of their requirements, they may:

  • Turn down your application altogether
  • Offer you a smaller overdraft/lower credit limit on a credit card
  • Charge you higher interest

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Access Your Credit File

You can access your credit report by requesting it from one of the three main credit reference agencies – Experian, Equifax or Callcredit. Access the application via their website. You may be charged a nominal fee of around £2 for applying for a copy of your file.

By viewing your credit report, you can see what the banks, building societies and lenders see about you. Most importantly, you can correct any mistakes that might be in there – for example, it might say in your report that you have an unpaid loan that you have actually paid off. Or it may list an old address for you.

Make sure you notify the credit reference agency as soon as possible if there are any mistakes as it can take a while to process these.

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How Much does it Cost to have a Bank Account?

If your account has money in it – called being in credit – you are not likely to have to pay any fees for the basic services you use (such as paying for goods and services with your debit card).

If your bank account is in credit and you find you are being charged, you have the right to as your bank or building society for a breakdown of how the charges are made up. You may also ask them for the total charges.

However, if you request or receive additional special features to your account then there may be fees attached. For instance, you might take insurance on the account, or add a credit card. These will carry particular fees. If you are not sure about fees in relation to a bank account, make sure you ask your bank or building society.

Here are some more aspects of a bank account which could incur fees:

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An Overdraft

An overdraft is a way of borrowing money from your bank or building society. It is linked to your current account. It allows you to exceed the balance of your account if you have made a prior agreement with your bank or building society. This is known as an authorised overdraft.

Interest is charged at the agreed rate on when your account is overdrawn. This will be deducted automatically from your account.

If you step into unauthorised overdraft territory – i.e. you spend more money than is available according the rules of your personal overdraft or if you have no overdraft facility – your bank or building society might charge you a fine.

You have to arrange an overdraft with your bank – they will decide how much they can offer you based on your personal circumstances. Make sure you stick to the arranged (authorised) amount to avoid paying a fine.

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Using Cash Machines (ATMs)

If you have a standard current account with a debit or credit card, you can withdraw money from any cash machine in the UK. You may also, depending on the issuer of your card (e.g. Maestro® or MasterCard®), make withdrawals in other countries.

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Withdrawals In the UK

If you use your debit card to withdraw cash in the UK, this is usually free – if the ATM you are using is connected to a mainstream bank or building society.

There are ATM machines provided in some shops, nightclubs and retailers which are issued by private companies and your card will be charged up to £1.50 for using them. However, there is generally a warning on the machine to notify you of this so you can choose to cancel the action.

If you use a credit card, charge card or store card to withdraw money, you may be charged a fee if your card issuer charges a cash-advance fee.

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Withdrawals In Other Countries

In many cases, you can use your debit and/or credit card in other countries as well as the UK. However, generally this can incur further fees. These include international withdrawal fees charged by your bank/building society and the cash machine operator. You may also be charged foreign exchange fees (for the conversion from one currency to the other) and purchase fees.

Please make sure you find out what these are before you decide to use your card overseas. In any case, there are much more cost effective ways to spend money abroad – from cash, travellers cheques to travel FX cards.

Please view our Information and Comparison pages to see how much better value it is to use one of them to pay for items abroad. For more information on credit cards, please view our Credit Cards Information area.

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Charges

Most banks and building societies do not charge for payments out of your account while you are in credit. They must tell you about any exchange rates and how long any payment will take to arrive. They should make this information available for every transaction, as each one occurs or at least once a month – probably in your statement.

Banks and building societies will generally charge you if they can't make a payment for you because you don't have enough money in your account.

You will not be charged for withdrawing cash at Post Office® branches using a cash card.

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Interest

An account held at a bank or building society will be subject to interest rates. On money which is in credit, you will earn interest. If your account is in its overdraft you will pay interest. If a reduction is to take place, the bank or building society must give you two months' notice.

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Tax on Interest

The interest on money in your account is subject to Her Majesty's Revenue and Customs (HMRC). In other words, the bank or building society will deducted tax at the basic tax rate and pay this to HMRC before you receive your cut as interest.

This does not apply with a cash ISA – the interest you receive in a cash ISA is tax free.

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Managing your Account

Your bank or building society will make sure you are regularly updated with regards to your bank account. They will do this by sending you regular statements – either in the post or by notifying you that you may view your latest statement online.

Statements allow you to:

  • View payments into your account (and who paid them)
  • View transactions/payments out
  • Your available balance (this includes, if applicable, your overdraft)

It is wise to keep track of what is happening in your account – for instance, check if you have gone into overdraft as you may be charged. It is also a good way to prevent criminal fraudulent activity – if you see something suspicious in your statement, you can report this immediately or cancel your credit/debit card.

If you intend to dispose of any paper statements or letters regarding your account(s), it is a very good idea to completely shred them. This prevents criminals from accessing your private details.

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Online Banking

Nowadays, a large proportion of account users choose to manage their account online. The bank/building society will provide an online banking facility together with a secure access system for each customer. This might include a personal customer number, pin and password (which you create yourself). From your online account, you can view statements, make payments/transactions, request an overdraft or extension and so on.

It is vital that you keep your personal data safe. Never share your pin or password with anyone, even family or friends. This helps to prevent identity or financial crime.

Your bank may contact you via email to inform you of matters relating to your account. They will never ask for personal details by reply or ask you to access your online account via a link. They will also never ask you to provide your sign in details. If you are in any doubt as to the information in the email, delete the email and contact your bank or building society.

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Responsibility and Rights

As an account holder, it is your responsibility to manage your money and ensuring you have enough credit or overdraft available to cover and payments going out of your account.

As with any consumer product, a bank account means you have a certain set of rights. After all, despite the fact that financial institutions are profit-seeking companies, they are also obliged to safeguard your money. They are regulated by a code of practise: the Banking and Business Banking Code. These codes are voluntary but all banks adhere to them. As financial services, they are also regulated by the Financial Services Authority.

If you have any doubts or questions connected to your bank or building society or any of their products, you can ask to speak to the branch manager. They are there to help you and explain their services. If you feel that you have been unfairly treated or mis-sold a financial product at your bank or building society, you can write to the bank – or take the matter to the Financial Ombudsman Service (FOS). They will explain to you if your matter falls under their remit, and will try to mediate between you and the bank.

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Changes to Terms and Conditions

Banks and building societies are permitted to make changes to the terms and conditions of your account. It must notify you of any intended changes before they are to take effect – this is designed to give you time to close the account if you wish to do so.

Nevertheless, it is extremely wise to keep tabs on your terms and conditions so that you always know where you stand and don't have to deal with any surprises.

Your bank/building society must also notify you if your branch plans to close or move premises.

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