In the current financial climate you may find it is becoming increasingly difficult to choose bank accounts. Which bank is safe to hold your hard earned cash and which account is the best for you? If you are a basic user, simply having your income (benefits, wages etc) paid in and spending the majority of that each month, then you would be likely to choose an account based on location of your local branch and the facilities that come with the account, for example debit card facility or cheque book.
Read our useful guide to give you more idea of what bank accounts are on offer and decide whether it is what you need.
Is Your Money Safe
How much of your money is protected if your chosen bank does get into difficulty? On the 7th October 2008 the amount of money protected in any bank operating within the UK was increased from 35k to 50k and it would seem very unlikely that the British Government would actually let a UK bank fail. From this common sense would tell you that spreading your investments throughout UK Banks would be the safest option.
Offshore bank account risks
Offshore bank accounts are not backed by the British Government so you will need to find out if your money would be protected by the relevant countries government. Irish banks are fully protected by the Irish government but analysts have claimed that the Irish Government does not have sufficient wealth to fully protect its banks. Some charities and local government bodies recently found themselves down by millions of pounds when an Icelandic bank they were depositors in, went bust. The UK government refused to help and the amount covered by the Icelandic government did not meet investors expectations.
Choosing a Bank Account
Opening banking accounts has been made quite easy. Usually you can apply online or in your local bank. Most employers would ask that you have a bank account to pay your wages into. However different bank accounts have different criteria and also apply different charges for things like going overdrawn or exceeding your overdraft limit. Different types of account exist that give you differing levels of access to your monies, whilst also making a difference in whether they offer cheque books, debit cards or credit cards. They also go even further in differing types of credit card, such as cashback credit cards.
Current Accounts explained
This is the most common bank account and allows you to have a cheque book, debit card and/or cheque guarantee card, set up Standing Orders and DDM's (direct debit mandate) and you can usually negotiate an overdraft facility. This account is usually also a free banking account, meaning that you do not have to pay an annual fee.
Basic Bank Accounts
Basic bank accounts do allow you to draw from ATM Machines and pay Standing Orders and DDM's (direct debit mandate) but does not allow an overdraft facility or cheque book. If this is your first bank account then this could be the best option as it does restrict you, so you would not be able to overspend. It is also an ideal account to apply for if you have had poor credit history in the past or no credit at all as it gives the opportunity for you to create a good relationship with a bank meaning that your bank will be more likely to offer you further credit or a different bank account in the future.
Savings Accounts explained
Savings accounts pay a higher rate of interest than current accounts but impose certain restrictions. Savings accounts usually don't offer a debit card, cheque book or provide standing order or DDM (direct debit mandate) payments. Some savings accounts require you to provide a notice period before being able to withdraw money. Some allow you to access your money inside this notice period but at the cost of a reduced interest rate. Anyone can apply for a savings account, but not everyone will be accepted. Your past credit history and age is usually taken into account.
On line Banking and Direct Banking
Accounts can now be set up online or in branch, however you will need to provide proof of identification as per the "Money Laundering Regulations" of 1994. The photo card of your Driving Licence is a valid form of ID as long as your photo remains up to date. Most people do not realise that there is a legal requirement to renew your licence photograph every 10 years and although your driving licence remains valid, the photo section may be refused as proof of ID. When making an online application for a bank account you need to have a few items close to hand, as once you have begun the application process you probbaly won't be able to save it and continue later. If you were to break off and come back to the application later in the day, you would need to start it again. Each bank is slightly different which regards to the information they need, but you will be required to provide your home address(es) for the past 3 years, your employment details and details of credit such as loans, mortgages and credit cards. Make sure you have this information ready prior to starting your application.
Banking Code of Practice
Before opening your account, check if the bank complies with the Banking Code which provides you with Key Features, Terms and Conditions, Charge Tariffs and any Additional Charges that would apply including use of ATM's or Cash Machines. This can be requested at any time whilst your Bank Account is open, and is provided when you first open your account making you fully aware of what to expect. Also look to see if you can use telephone banking and internet banking as most banks now do offer these services and they really can be very useful when you quickly want to check your account or pay a bill.