Bank accounts can help you manage your everyday money. There are different types of bank accounts to suit your personal situation.
This section tells you about the different types of bank accounts, and how your bank or building society will do business with you.
Bank accounts can help you to:
- pay your bills;
- receive money - such as your salary;
- transfer money to people and companies; and
- save money for special occasions and/or emergencies.
Bank accounts can also pay you interest on the money you have in the account.
Different bank accounts also offer different features such as cheque books, cash cards, debit cards and overdrafts.
The main types of bank account are as follows:
- Basic bank account - for managing your day-to-day money. This type of account will not usually allow you to go overdrawn by more than £10, if at all.
- Current account - also for managing your day-to-day money, but with more features than a basic bank account. Some current accounts pay you interest if you are in credit, but a savings account will usually pay a higher rate of interest.
Savings (or deposit) account - for putting away money that you would like to save, perhaps to buy furniture or pay for a holiday or emergencies. It often pays a higher rate of interest than current accounts, so your money grows.
How much does a bank account cost?
If you have money in your account (this is called being in credit), you do not usually have to pay a fee for the standard services provided for your account.
These services may include:
- paying for goods and services with your cheque book or debit card;
- most cash withdrawals within the British Isles;
- paying cash in; and
- making payments by standing order or direct debit.
There is a charge for some bank accounts to perform these services, so do double check with your bank or building society and consider shopping around.
Some accounts have additional features, for example various types of insurance, for which you will usually be charged a monthly or yearly fee.
An overdraft is a way of borrowing money from your bank or building society, linked to your current account.
Some banks or building societies offer an interest-free overdraft period however, this is unusual and interest rates on an overdrawn account are usually higher than those for personal loans.
Charges can also be high if you spend more money than you have in your account without arranging an overdraft, or if you go over any overdraft limit that you have agreed with your bank.
Cash machines (ATMs)
In Great Britain, taking money out of a cash machine (or ATM) using your debit card is usually free.
There are, however, some convenience cash machines such as those inside some small shops, on garage forecourts and in nightclubs that may charge you each time you withdraw money from them.
You may also be charged if you use a credit card or charge card to withdraw money and your card issuer charges a cash-advance fee. The cash machine will inform you up front if you will be charged for withdrawing cash (for example from a credit card), so you can decide whether to cancel the transaction or carry on.
You may also be charged by your bank or building society, or by the cash machine operator, when you use cash machines abroad. They should always tell you, before you withdraw the money, how much the charge will be.
Opening a bank account
Before opening an account you will receive information about the account and the services provided by the bank or building society.
You will need to provide the bank or building society with documents that prove your identity before they will open an account for you.
You can open an account in your name only or with another person or persons (a joint account).
Before opening an account, a bank or building society will provide you details about:
- the banking services they provide;
- any charges for that service;
- the interest rate (if any) they will pay you on money you have in the account;
- the terms and conditions of the account;
- how the account or services can be operated or accessed (for example in a branch or online);
- any spending limits on the account;
- what to do if things go wrong;
- how they will give you information about transactions into and out of your account; and
- any compensation arrangements that apply if they go out of business, including how their different trading names may affect your entitlement to compensation.
Once you have decided which type of account you want to open, you will usually be asked to:
- fill in an application form or provide information about yourself in another way;
- provide proof of your identity - you need to prove who you are and where you live; and
- pay some money into your account (you may be able to do this at a later date).
The bank or building society will tell you if it plans to run a credit check on you with a credit reference agency about your suitability to have a bank account.
A joint account is an account that you open together with one or more other people. If you are applying to open a joint account, the bank or building society should tell you about the extra rights and responsibilities involved before you open the account. You should ask or be told:
- whether one person can withdraw money without the knowledge or permission of the other account holder(s);
- whether each person will be individually responsible to the bank or building society for repaying the whole amount of any overdraft on the account; and
- what to do if your relationship with a joint account holder ends.
Proof of identity
Anti-money laundering rules require banks and building societies to identify new customers. This is to help stop the proceeds of criminal activities being passed or ‘laundered’ through bank accounts and the banking system.
Firms will explain which documents they will accept as proof of your identity, although this may vary from one bank or building society to another. To find out what each firm will accept as proof of identity you can check on their website or ask the branch staff.
You may also be asked to prove your identity if you make a large cash deposit or withdrawal. The bank or building society will probably copy or make a note of the details of the identity documents you provide, but they must protect all of your personal data.
There are so many banks, building societies and different types of accounts that it can be quite difficult to work out which one is right for you.
A good starting point is to think about how important the various different features are to you. Would you prefer to be able to talk to your bank face to face in your local branch? Or would you prefer to do everything by telephone or over the internet?
Running your bank account
You can use your bank account to pay money in and out in various ways. You will get information about your transactions and what charges you may have to pay.
You are responsible for managing your money and making sure that you have enough money available in your account to cover any payments going out.
Your bank or building society must give you certain information about the payments you make or receive. It will tell you what information it needs to send or receive payments.
Make sure that you give the bank or building society or someone who is paying money to you the correct information. They may not be liable if you give the wrong details, for example the sort code or account number, and the money goes to the wrong place.
You can pay in cash and cheques, made payable to you, at your local bank or building society branch in the following ways:
- by completing a paying-in slip and paying in over the counter;
- by using a self-service paying-in facility at your local branch; or
- by sending a cheque, by post, to your bank.
Your account can receive automated transfers, such as your salary, paid straight into your account by your employer. This is known as payment by BACS and your employer will need your bank details, including your sort code and your account number, to do this. You will find these on your bank statement, cheque book, or credit/debit card.
Most banks or building societies will not charge you to receive payments but do ask if you are unsure. They must tell you if they do charge for this.
Payments into your account must be credited to your account on the day they are received. The money (except for cheques) must be available for you to use as soon as it is credited. This includes cash payments over the counter.
Cheques paid into sterling current accounts have a clearing cycle, this means that you start receiving interest on the second business day after you have paid the cheque in (on Wednesday if you paid in the cheque on Monday). By the fourth business day (Friday) you can withdraw or spend the money, and by the end of the sixth business day (the following Tuesday) you can be sure that the cheque has completely cleared and cannot be returned unpaid. Some cheques paid in late in the day may not be processed until the next working day.
Unpaid cheques - if a cheque that you have paid in is returned unpaid because there is not enough money in the payer’s account, the bank or building society will usually take the money back out of your account and charge you.
Withdrawing cash - you can take cash out from most bank or building society-operated cash machines, at the supermarket and other shops (known as cashback), or at your branch at no charge.
There is usually a limit to how much cash you can take out at one time or in a day, and your bank or building society must make these limits clear to you. This money is deducted from your account straight away.
If you try to withdraw more money than you have in your account, or more than you have agreed with your bank or building society that you can borrow on any overdraft you may have, they may refuse to make the payment. They must notify you if this happens, and you will know because your payment or withdrawal will be refused.
Using a debit card - you can pay for goods using your debit card at shops and businesses where you see signs for the payment systems which operate them, for example: Visa; Maestro; Electron; and Solo; their logo will be on your card. These systems have arrangements with your bank or building society to take out the money from your account and pay the retailer. The money is usually deducted from your available balance right away, although it may not be taken from your account until the next day. You need to authorise the payment by entering your personal identification number (PIN), although some retailers still swipe the card and ask you for a signature.
Tell your bank or building society if you are going abroad, this will avoid them blocking your card for suspected unauthorised use.
Paying bills - you can pay bills by direct debit, standing order, cheque, telephone or internet banking. You should ask your bank or building society how long it will take for payments to arrive.
Make sure you provide the correct details when paying bills by internet banking or over the phone and always include the payment reference (which you can find on the payment section of your bill). This will help your bank or building society to make the payment quickly and easily.
On a cheque, always clearly write the name of the person you are paying and try to put extra information about them on the cheque. For example, if the cheque is to an organisation, bank or building society, then always add details to the payee line such as a reference or the payee’s account number. Make sure you draw a line through any blank spaces on the cheque so people cannot add extra numbers or names.
You can currently guarantee the amount of your cheque with a cheque guarantee card, however, these are being phased out and will not exist after 30 June 2011.
Some banks and building societies are now using the Faster Payments Service (FPS) for internet, phone or standing order payments. This means that payment can be made on the same day for standing orders and within two hours for phone or internet payments.
Charges - most banks and building societies do not charge for payments out of your account whilst you are in credit. If they do, you can ask them for the total charges and a breakdown of how they are made up.
Banks and building societies 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 cannot make a payment for you because you do not have enough money in your account.
Keeping track of your money
For almost all accounts, your bank or building society will provide you with regular statements so that you can see:
- payments into your account;
- where your money is going (for current accounts);
- or how your money is growing (for savings accounts); and
- your balance - the money available to you (including any authorised overdraft).
Statements may be monthly, quarterly or yearly, depending on the type of account. They will usually come in the post, but if you use internet banking you may receive them online.
You may also be able to get mini-statements from cash machines which show transactions over a particular time.
Some accounts come with a passbook which you need to take each time you pay in or withdraw money. The cashier records your transactions and any interest paid on your savings in it. If this is the case, you may not get statements.
Make sure you keep track of how much money is left in your account, because if you go overdrawn you may be charged.
- Check statements from your bank and receipts or mini-statements from cash machines, and report anything that looks wrong.
- Fill in cheque book stubs to keep track of the cheques that you have written and who you have written them to.
- Keep paying-in stubs until the money has arrived in your account.
Keep track of where your money is going and keep your bank statements in a safe place.
It is a good idea to shred any personal data once you no longer need to keep it - this helps to protect you against identity fraud.
You may decide to switch accounts either to another account with the same bank or building society, or to an account with a different bank or building society. Check the interest rate and overdraft charges to see if you would be better off switching your account.
Your existing provider must help you switch and may arrange for existing standing orders or direct debits to be switched.
Some banks offer an automatic switching service when you move your account to them, by arranging for any regular payments that you have set up to be moved over.
You can close most bank accounts at any time, without charge or penalty.
If there are conditions on closing the account, as in a term deposit account, your bank or building society must make these clear to you before you open the account. If you decide you still want to close the account before the term is up, you may lose interest or have to pay a charge.
Your bank or building society may also decide to close your account. If it is going to do so, for most accounts, such as your current account or an instant access savings account, it must give you reasonable notice to enable you to make other arrangements.
Your bank or building society should not close your account because you make a complaint against it.
Interest rate changes
Your bank or building society must tell you about any changes to interest rates as they apply to your current or instant access savings account.
They have to give you notice before reducing your interest rate, unless it is to your advantage or it tracks a reference rate (for example the Bank of England Base Rate).
For other accounts, such as notice or term deposits, your bank or building society will inform you, in advance, of any reductions to the interest rate that will make a significant difference to you. They should give you the information, in good time, before the rate reduction takes effect.
You can ask your bank or building society at any time about the interest rate which applies to your account.
Changes to your terms and conditions
A bank or building society can make changes to the terms and conditions of your account, however, it must notify you of any proposed changes before they are due to take effect to give you time to close the account or make any other arrangements that you may decide to take.
You may agree to your bank or building society making changes without your agreement. When you receive notice of the changes you can still reject them but your terms and conditions may say that if you do, you will be giving notice to terminate the account. So check the terms and conditions.