Bank Accounts

Why open a bank account?

There are around 2 million adults in the UK who do not have a bank account. Reasons for this may vary: some people simply do not want one as they may find it easier to work in cash; others might be reluctant to apply for an account, after having been turned down in the past. However, not having a bank account means you may miss out on a whole host of benefits.

  • If you have a bank account your wages and benefits can be paid straight into this, which will be far easier and more convenient both for yourself and for your employer. Fewer employers now pay wages by cash so you may find if you get a new job you will need to supply bank account details in order to get paid.
  • Your money will also be much safer in the bank than it if you keep it in cash, as it’s not so vulnerable to theft or loss. In the unlikely event that your bank does fail, as long as it is UK-regulated your savings are protected up to a value of £85,000 per bank – if you have more than this saved up you will need to split it between different banks to ensure it is all protected. Joint accounts are protected up to £170,000 as the allowance for these is based on there being two account holders.
  • Having your money in the bank can earn you more money! You will be paid interest on any money you have deposited in the bank and savings can be placed into a separate ‘savings account’. This means they will earn a higher rate of interest and you can keep them separate from your day to day money.
  • You may also be able to benefit from discounts available to those who pay bills by direct debit once you have a bank account. Quite a lot of companies offer this facility and the discounts offered can really add up so it is definitely worth looking into.
  • If you have concerns that you may find it more difficult to budget when dealing with electronic payments rather than cash, or if you have been turned down when applying for a bank account before, you may want to consider a basic bank account – these do not have an overdraft facility which can make it easier to keep on top of your spending. There is more information on basic bank accounts further down the page. You could also try withdrawing the money you need from the bank each week, so you can keep an eye on your spending whilst still benefiting from the positive aspects of having a bank account.

Which type of account is right for you?

Once you have decided to open a bank account, the next thing to think about is which type of account would be right for you. This will mostly depend on what you want to use the account for, and you may find you will need more than one type of account, for instance you might want a current account to manage your day-to-day money and also a savings account to put some money aside.

  • Basic bank accounts – These have quite limited features and different banks will vary as to exactly what they offer. Generally, a basic bank account will allow you to receive money (e.g. benefits or wages), pay in cheques, withdraw money from a cash machine or the Post Office and pay bills by direct debit. They will not usually let you go overdrawn (although some may have a £10 ‘buffer zone’). Most people should be able to open a basic bank account, even if you have a bad credit rating or have been declared bankrupt in the past. The Money Advice Service has a useful guide to basic bank accounts which can be accessed here.
  • Current accounts – These are similar to a basic bank account but will usually offer you extra features: for instance, you may be able to apply for an overdraft, receive interest, use telephone or internet banking facilities and they may provide other special offers such as insurance.
  • Savings accounts – These are specially designed to help you save money and usually offer you a better rate of interest on your deposits, however, you may have to think more carefully about the access you will want to have to your money. Some will offer ‘instant access’ where you can withdraw the money whenever you like, others may be ‘fixed notice’ or ‘term’ accounts where you will earn more interest but have to give the bank a certain amount of notice before you withdraw any money.ISAs (Individual Savings Accounts) are a form of savings account where you do not have to pay tax on any interest you earn, although, you may not be able to access any money immediately – check with your bank to see what options they offer and which would be best for you. Check out our section on Savings and Investments for more information on ISAs and other savings accounts.
  • Shariah compliant accounts – These are designed to follow Islamic law. They are similar to other types of bank accounts but they are run according to Islamic Law, they do not pay interest. You may receive a return on your money in a form other than interest. (For more information on Shariah compliant accounts, see our Shariah Compliant Financial Products section.)

Which bank should you open an account with?

When you have considered which type of account you want, you will need to see what options different banks are offering. Take some time to shop around. There are several points to consider, and your ultimate decision will be based on what is most important to you depending on how you will be using the account.

You’ll need to think about:

  • What interest (if any) the bank will pay you on your deposits.
  • How you will have access to the account (this may include telephone and internet banking).
  • Whether you have a branch nearby that you can ac*cess easily.
  • Whether there are cash machines (or ATMs) in your area that you will be able to use to withdraw money (if the account you want offers this feature). Some cash points may charge you to use them, but if this is the case then they must clearly tell you this BEFORE they charge you. Try to avoid these if possible as the costs can quickly add up. If you have to use a cash machine that will charge you, try to make sure you take out all the money you need in one go to save yourself being charged several times.
  • Whether you will be able to apply for an overdraft and what happens if you accidentally try to spend more money than you have in the account. The bank will usually charge you for doing this and may refuse to honour the payment.
  • What you will have to pay for – this could include any money you may have to pay as interest on an overdraft and charges to take money out from certain cash machines, but you may also have to pay for any special features such as insurance offered by the account. You will need to consider whether you really need these services and whether it might be cheaper for you to get them elsewhere.
  • Do you need a joint account? This is useful if you are sharing a property with someone else or several other people and need an account which you can pay household bills from. If you want to set up a joint account you should ask about: whether one person can withdraw money from the account without permission of the other(s), who will be responsible for paying back any overdraft, and what happens if your relationship with the other account holder(s) breaks down? Also bear in mind that if you open a joint account with someone who has a history of bad credit, it may affect your own credit rating.

When you know which account you want and which bank you want it from, the next step is to open the account. You will need to fill out an application form, provide proof of identity and some banks will require you to pay in some money to open the account. In order to prove your identity the bank may require an official document, usually with a photograph (for instance a passport or new-style photocard driving license).

If you do not have these documents the bank may accept something else, such as a letter from a government department or local council confirming your entitlement to benefits, or a letter from a care home manager or the warden of a sheltered scheme confirming your identity. Check with your bank for a full list of documents which they can accept, or see our Types of Identification page for a list of documents you may be able to use.

What if I lose track of a bank account?

Sometimes you may lose touch with a bank account, for example, if you move house and forget to give your bank your new address. If your account is inactive (you don’t pay any money into or out of it) for a long time, the bank will try to contact you to see if you still want to keep the account open. If they cannot get in touch with you they will continue to hold your account and any money in it will remain your property, however, they will stop sending out statements and so on because if they no longer have your correct address they can’t be sure who will pick these up and your security could be compromised.

If you think you have a ‘lost account’, you can try to trace it either by contacting the bank you held your account with, or through My Lost Account. Services for tracing lost accounts should be free and take no more than a couple of months, although this can vary depending on how busy the service is at the time you apply.