Types of bank account
There are two types of bank account for managing everyday money: a basic bank account and a current account. Banks also offer a range of accounts designed for medium or longer-term savings. Savings or 'term' accounts usually pay more interest than basic and current accounts.
Basic bank accounts offer a convenient place to keep money you need for everyday use. You can arrange to have wages, State Pension and benefits or tax credits paid into one. You can also pay in cheques or cash free of charge, and set up 'direct debits' which pay regular bills automatically from your account.
With a basic bank account you get a cash card which you can use at a bank machine to withdraw cash. Some also offer a 'debit card' that you can pay for items with, and get 'cashback'; but with a basic account these will only work if there's enough money in your account.
You don't get a cheque book with a basic bank account, and you can't take out more money than is in the account ('go overdrawn'). For this reason basic bank accounts are useful for anyone worried about overspending.
Current accounts have more features than basic bank accounts. For example, they usually offer:
- cheque book
- cheque guarantee card (acts as a 'guarantee' so makes cheques more widely acceptable)
- debit card (some allow payments without checking your account)
- direct debits (automatic bill payments direct from your account)
- standing orders (regular set payments from your account to someone of your choice)
- BACS (Bankers' automated clearing service) - the facility to accept payments directly into your account (eg from your employer), or for you to make one-off payments to someone else out of the account
- overdraft facility - the bank may allow you to go overdrawn up to a certain amount; but you need to arrange this in advance and charges apply (you pay extra charges if you go overdrawn without an agreement)
Some current accounts pay interest on money you leave in the account, but the rate is usually low.
Opening and running a bank account
In order to open a bank account you'll need to complete an application form and provide certain personal information. For some accounts you'll also need to pay money in and the bank may want to check your credit history. Once the account's open you can start managing your money.
Opening a bank account
In order to open a bank account you'll usually be asked to:
- prove who you are
- prove where you live
- prove student status, if relevant
- fill in an application form
- in some cases pay some money into your account
For accounts that allow you to borrow or go overdrawn, the bank may want to run a 'credit check'; in other words to get references from previous banks or lenders that you are a reliable customer before opening the account.
Why you need to prove your identity
You need to prove your identity in order to help banks in the fight against money laundering whereby criminals try to open accounts - often in false names or using stolen identities - with money made from or intended for illegal activities. By law banks must check to make sure they know their customer before letting you open an account or buy their financial products or services.
