What different types of bank accounts are available to you?

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It’s tempting to think all bank accounts are essentially the same, that they’re just places where you keep your income until you spend it. But there’s more to bank accounts than that.

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What is a bank account?

Offered by a financial institution, such as a bank or building society, a bank account is a safe place to keep your money. 

UK banks are regulated by the Financial Conduct Authority, which means if they go bust, your money is protected so you don’t lose out. 

What are the different types of bank accounts?

When people talk about bank accounts, they typically mean current accounts rather than savings accounts. Current accounts are for budgeting and managing monthly household bills and expenses. 

Most bank accounts accommodate online and mobile banking. Money is deposited, withdrawn or used to make card, online or mobile payments via systems such as Apple Pay, Google Pay or Samsung Wallet. 

The type of bank account you might want or be able to apply for will depend on your circumstances and needs. These are the main types of accounts:

Current account

These are the standard bank accounts offered by banks and building societies. There’s generally no charge for holding a current account. You can use them to receive, transfer and pay out money, and most give you access to an overdraft. But while overdrafts are a common benefit, you need to apply for one. Once it’s been agreed, this feature will allow you to borrow up to a set limit if your account reaches zero. If you have an overdraft , remember to pay off the overdraft promptly to avoid additional charges

Basic account 

Free-to-use basic bank accounts are designed for individuals with poor credit ratings or those who may not qualify otherwise for a different type of current account. They’re intended for people who would be considered a credit risk. This includes anyone who has been declared bankrupt, is on a Debt Management Plan or is an ex-prisoner. Basic accounts allow you to make and receive payments, transfers and cash card withdrawals. These accounts don’t provide cheque books or overdrafts.

Children’s bank account

Children’s bank accounts are available to young people aged from 11 to 18. These are designed to introduce children and teenagers to money management. A parent or guardian needs to set them up for those under 16. They are free to use but don’t offer an overdraft facility or interest.

Student and Graduate accounts

These accounts are similar to standard current accounts but come with a range of benefits tailored to attract individuals starting or completing a college or university course. Perks can include a railcard, gift vouchers, cashback and interest-free overdrafts.

Packaged accounts

With a packaged account, you get access to additional benefits such as travel, mobile phone or breakdown cover for a fee of, say, £15 per month.

Joint accounts

Joint accounts are designed for two individuals who share responsibility for the funds held within them, including any payments and overdrafts. Popular with spouses, civil partners, and people living together, these accounts can also prove a valuable resource for business partners.

What are savings accounts?

Savings accounts differ from current accounts as they’re intended for longer-term goals, such as saving up for a holiday, mortgage or rainy day. With savings accounts, you earn interest, so your money can grow if you leave it untouched. They don’t have an overdraft, as that would defeat the point of this type of bank account.

If you wish to open a savings account, you’ll usually have a choice of instant-access, fixed-rate or notice accounts. You can also open any of these as cash Isas to earn tax-free interest.

How do I open a bank account?

You can apply to open a bank account in a branch, online via a bank app or, in some cases, over the phone. You need to provide proof of identity, such as a passport or driving licence. If you’re opening one for a minor, you’ll need proof of their ID, such as their birth certificate or passport, plus proof of ID and address for you as their parent or guardian.   

Opening an account typically takes less than half an hour to open. Once it’s open, you can use it immediately, but in most cases, you need to wait up to five days for your bank card and PIN, which are sent to you, separately. Some banks, such as Metro, can open and issue your cards and PIN on the same day.

What type of bank account is best?

Some bank accounts are better than others. The optimal choice for people who slip into the red occasionally may be an account with a reasonably sized interest-free overdraft, such as £250. If that’s not possible, they should look for accounts where the overdrafts have relatively low interest charges.

If you rarely, if ever, use an overdraft and tend to have a comfortable amount in your account, an interest-paying account may be best. Again, you should shop around on comparison sites, such as Money.co.uk, for the best deals.

Some card providers dangle a carrot before prospective customers in the form of a cash welcome when you switch to them. For example, First Direct will pay you £175 if you deposit £1,000 in one of their 1st Accounts. Others will pay you cashback for purchases made with the card. 

Can I open multiple current accounts?

You can open as many accounts as you want, providing you meet the criteria for each. In fact, it can be a good idea to have more than one. For example, you may have 

  • A card that pays you 1% cashback for purchases, such as if you have a regular large grocery bill. 

  • A card for making payments and withdrawals abroad

  • A card with low overdraft charges abroad

The only downside would be remembering all those PINs.

How do I switch bank accounts?

You may wish to switch bank accounts at certain times, such as when you leave university and need a larger overdraft

Likewise, it may be worth jumping ship if an initial, attractive interest rate period ends or when another provider offers a more competitive interest rate. 

Banks also offer current account switching offers which are worth taking advantage of.

Doing so couldn’t be easier: all UK banks use a system called the Current Account Switch Service (CASS). This system will ensure all your Direct Debits and standing orders, as well as your balance is transferred automatically to your new account. It will also ensure all incoming payments, such as your salary or benefits, are redirected to your new account. 

All you need to do is the following:

  • Apply to open an account with your preferred new provider

  • Indicate you want to switch from an existing account held with another bank

  • Provide your account and bank card numbers

  • Select a date when the transfer of your accounts and any funds will happen … and that’s it

Note: Before applying, check that your new bank will take on your overdraft (should you be in the red when you want to switch).

New bank accounts are offered all the time, so compare all of the best options to make sure you get the right one for you.

About Dan Moore

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