Types of Bank Accounts you need to Know – Explained
With so many bank account options out there, it's normal to feel unsure about which ones suit you best. How a bank account operates depends on the type you choose. When you have a bank account, you can keep your money safe and do important things like paying bills, buying stuff online or in stores, and receiving your salary.
In the UK, all banks, building societies, and credit unions that are registered are supported by the Financial Services Compensation Scheme (FSCS). This means that if the financial institution fails, your deposits are protected, and you should be able to get back the money you put into your account.
Types of main bank accounts
People often call Current Accounts simply "Bank Accounts." A Current Account is like your everyday money hub. It lets you pay bills, see how much money you have, use your debit card to buy things, and do other everyday banking stuff.
1. Basic Bank Accounts
A Basic Bank Account offers what you need for everyday banking without charging you a monthly fee. It's perfect for people who might not qualify for other types of current accounts. Basic bank accounts typically include a debit card and let you bank online and through your phone. They usually don't allow you to spend more money than you have, provide checks, or charge a monthly fee.
A basic bank account offers the basic features you need for everyday banking without charging you a monthly fee. It's a good option for people who might not qualify for other types of bank accounts.
2. Current Accounts
A Current Account is like a gateway to various banking services. Many people prefer it because there's usually no monthly fee, yet it offers everything you need to handle your everyday banking tasks easily.
You can choose to open a current account with many banks, but they'll check your credit and assess your personal situation to decide if you're eligible. Your age and other factors might also affect whether you can open an account with a particular bank.
Many folks use a current account for everyday banking tasks like depositing and withdrawing cash, getting paid their salary, and setting up automatic payments. When you open one, think about how much money you need to put in, if the bank lets you borrow extra money if you need it, how easy it is to use your account, and if you can use ATMs for free.
3. Packaged Accounts
A Packaged Bank Account is like a regular current account but with added perks. You pay a monthly fee for these benefits.
Packaged accounts are current accounts that offer extra benefits for a monthly fee, usually around £10 to £15. They're called "packaged" because they include the usual features of a current account plus some additional perks.
These perks might be things like car breakdown cover, travel insurance, or better rates on loans or overdrafts from the same bank. Even if these extras seem nice, make sure they're worth the monthly fee and that you'll actually use them enough to make it worthwhile.
4. Students Accounts
A Student Bank Account is like a regular current account but with special features for students. These features might include an overdraft without interest, a rail card, gift vouchers, or other perks. After you finish your studies, the account will likely become a regular current account.
Student and graduate accounts are similar to regular current accounts, but the big difference is the overdraft feature. Many banks give students an interest-free overdraft of up to £3,000. This perk is often extended to graduates too. If you get a graduate account, you might also get good deals on things like mortgages or other bank products. These accounts are made for people in college or university, and when you finish your studies, they usually turn into regular current accounts. Just remember, once it becomes a regular account, your overdraft might start charging you interest, so it's smart to pay it off before then.
5. Savings Accounts
Savings accounts are different from current and packaged accounts because they're where you put your money to earn interest. There are various types:
- Notice accounts: They give you good rates and let you take out your money after giving notice.
- Fixed rate bonds: You get a fixed interest rate if you leave your money for a specific time.
- Easy access accounts: You can add or take out money whenever you want, and they usually have competitive rates that can change.
So, each type offers different benefits depending on your needs and how you want to manage your money.
6. Joint Bank Accounts
A Joint Bank Account is when two people share one bank account. It's a way for couples or partners to manage their money together, like paying bills or covering shared expenses.
Most types of bank accounts can be joint accounts, whether it's for savings, everyday spending, or accounts with extra benefits. If having a joint account is important to you, make sure to ask the bank if the account you want can be opened jointly.
Remember, when you open a joint account, your financial information is linked together with the other person's.
7. Children’s Bank Accounts
A children’s bank account is like a regular current account but made for kids to learn about money. They're usually for kids aged 11 to 18 and have limits to help manage spending.
If the child is under 16, a parent or guardian usually has to open the account for them.
Understanding the various types of bank accounts is essential for managing personal finances effectively. From everyday Current Accounts to specialized accounts like Savings Accounts, Joint Accounts, and Children’s Accounts, each serves specific needs and offers unique benefits.
Choosing the right account depends on individual financial goals, lifestyle, and preferences. Whether it's for day-to-day transactions, saving for the future, managing shared expenses, or teaching children about money, selecting the appropriate bank account can help individuals and families achieve their financial objectives while ensuring their money is safe and accessible.
It's important to explore the options, consider fees, interest rates, and features, and make informed decisions to optimize banking experiences and meet financial aspirations. Hope our blog gave more insights on types of bank accounts. Don’t forget to check our blogs on types of investment.