Bank Accounts - Guide - Banking - Guides - Moneyfacts

Guides

Bank Accounts - Guide

Bank Accounts - Guide

Category: Banking

Updated: 31/08/2016
First Published: 30/08/2016

Bank accounts are offered by both banks and building societies and come in various shapes and sizes, from savings accounts to current accounts. When someone refers to 'banking' they are probably talking about a current account or basic bank account.


  • A current account will allow you to use the banking system to do everyday things, such as paying for purchases with a cheque or debit card, or managing a direct debit. Many people have their salary, pension or benefits paid directly into a bank account by electronic transfer. Current accounts may also have an agreed overdraft facility (essentially a form of credit should you need it).
  • Basic bank accounts are the Government's attempt to get people on lower salaries who wouldn't be eligible for a full current account into the banking system. They allow money to be paid in and provide a cash card, and some offer the facility to set up direct debits.

Having a bank account can be a gateway to accessing other financial products, such as credit cards or mortgages where the providers need to be sure that repayments can be made. They will probably look at how you have run your bank account as part of their credit checking process.

Interest rates

Some current accounts now offer higher rates of interest than a few years ago, as banks and building societies try to attract regular cash deposits from customers. Some will even pay more than savings products - check out the top high interest current accounts to find out more.

How do bank account providers make their money?

  • Until recently current accounts paid very low rates of interest (if any). The providers used the funds in the accounts to lend to others in the form of loans and overdrafts, which they made interest (and therefore money) on. This is still true, but if a good rate of interest is offered on the account, they make less money from it.
  • Instead, fees and interest charges account for a large proportion of a bank's income from these accounts. These charges are for things like going overdrawn without authorisation, exceeding overdraft limits, or bounced cheques. Banks have been accused of making undue profits from these charges when they are supposed to just cover administration costs. As these charges fall, more accounts are introducing a monthly fee, but you'll usually get some additional benefit for paying it.

What Next?

Find the best bank account for you - compare bank accounts

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

Related Articles

7 steps to getting (and staying) overdraft-free

Get yourself overdraft free by following our practical, seven step guide. You can actually turn a bad habit on its head and start saving as well!

Bank accounts – key factors to consider

Bank accounts generally are designed to do the same job, but depending on how you'll run your account, you will be looking for different things in terms of what your account offers.

What is a Direct Debit?

How exactly does a direct debit work? A great way of paying regular bills, there’s also certain pitfalls to be aware of before setting up direct debits…
 
 
Close