Running a Bank Account

Managing a bank account is often the first step toward taking control of your finances. There are many different types of accounts and cards available, each suited to different needs and circumstances. Understanding how bank accounts work and choosing the right one can help you manage your money more effectively and avoid unnecessary charges.

There are several types of bank accounts to consider:

Current accounts - For day-to-day money management, paying bills and receiving wages.

Packaged accounts - Cost £10-£15 per month but include added benefits like travel insurance or breakdown cover.

Fee-free basic bank accounts - Ideal if you have a poor credit history or are new to banking. These offer essential features without monthly charges.

Jam jar accounts - Budgeting-focused accounts that let you divide your money into separate "pots" for different expenses.

Student and graduate accounts - Often come with interest-free overdrafts and other benefits for those in education.

Account switching - You can switch your account to a new bank in just 7 working days using the Current Account Switch Service.

Bank accounts come with different types of cards:

Debit cards - Linked directly to your bank account. Money comes out immediately when you spend.

Credit cards - Allow you to borrow money to make purchases. You'll need to pay it back, with interest if not paid in full.

Prepaid cards - You load money onto the card in advance. You can only spend what you've loaded.

There are various ways to pay money in and out of your account:

Paying money in:

• At a bank counter
• Online transfers
• Cash deposit machines
• Through the Post Office

Paying bills:

• Direct Debits - Automatic payments that can vary in amount
• Standing orders - Fixed regular payments you set up
• Bank transfers - One-off or regular payments you control
• Cheques - Less common but still accepted
• Online and phone payments

Standard current accounts typically offer:

• A debit card for payments and cash withdrawals
• Cheque book (if requested)
• Ability to receive regular payments like wages
• Set up Direct Debits and standing orders
• Cash withdrawal from ATMs
• Access to an overdraft (subject to approval)

Eligibility requirements:

• Must be aged 16 or over
• Proof of identity (passport, driving licence)
• Proof of address (utility bill, bank statement)
• Credit check may be required

Costs:
Current accounts are usually free if you stay in credit. Overdraft interest typically ranges from 15-40% APR. Refused payments can cost up to £25.

Banks may charge fees for various services:

• Overdraft interest - Charged when you borrow through your overdraft (19-40% APR since April 2020 regulations)
• Refused payment charges - Up to £25 if a Direct Debit or standing order is declined
• ATM fees - Some cash machines charge up to £5 per withdrawal
• Foreign transaction fees - Up to 3% when spending abroad
• Same-day transfers - £15-£55 for CHAPS payments
• One-off services - £3-£30 for things like replacement cards or paper statements

Always check your account terms to understand what fees may apply.

An overdraft lets you spend more money than you have in your account, up to an agreed limit. **Authorised overdraft:** Agreed with your bank in advance. You'll pay interest but won't face penalty charges. **Unauthorised overdraft:** Spending beyond your agreed limit or without an overdraft agreement. This can result in refused payments and damage to your credit score. **April 2020 changes:** Regulations now require banks to charge a single annual percentage rate (APR) for overdrafts, typically 19-40%. This makes it easier to compare costs between providers. **Managing overdraft debt:** If you regularly rely on your overdraft, consider speaking to your bank about your options or contact us for free debt advice on **0800 808 5700**.