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Bank Accounts - Guide

Category: Banking
Author: Tim Leonard
Updated: 12/03/2018

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?

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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.