1. RECEIVING DEPOSITS

1. Current Accounts

In the not too recent past, the only type of “current” account you would have been able to open would have been a traditional cheque-book current account. However, as with most services in the banking sector, recently banks have started to offer their customers a wide range of current account services in the hopes of attracting (and, more importantly, keeping) their custom. Consequently, today (depending on whether or not you qualify) you could feasible open any one of the following types of current accounts:

1.1 Traditional Current Account

As the name suggests, the traditional current account offers customers the chance to deposit money on an account that allows them to withdraw the money by means of using a[n]:

(i) cheque-book;
(ii) cheque-book and cheque guarantee card (which, these days, can guarantee cheques for either 50 or 100 Pounds);
(iii) ATM card;
(iv) debit card (which is used in much the same way as a credit card, but takes the money off the account automatically, rather than sending you a monthly statement); and
(v) counter-cheque to withdraw money at the till in a branch of the bank where they bank.

 

Although it varies from bank-to-bank, most UK banks these days offer minimal payable interest on credit balances. Moreover, subject to approval from the bank, customers who have traditional current accounts can operate overdrafts on their accounts. A note of caution, however, maintaining an unauthorised overdraft on your current account will subject you to high interest rates and fee charges and should, therefore, be avoid.

1.2 High Interest Current Account

High interest current accounts are maintained by those who have healthy bank balances. Effectively the account works in very much the same way as a traditional current account. Where the account differs is with its payable and chargeable interest. In short, those who maintain balances on their high interest current account in excess of certain thresholds will be entitled to additional interest accruing to their account. On the other hand, if they fail to maintain these required balances, they’ll likely be forced to pay a penalty charge.

1.3 Student & Young Person’s Current Accounts

Student & young person’s current accounts are a means for students and young persons to become used to using a current account without any lending services necessarily being provided. Due to the UK’s laws regarding the creation of debt for those under 18 (which, very simply stated, specify those under 18 cannot be held accountable for the debt they create), traditionally UK banks did not permit those under 18 from opening current accounts – on which overdrafts can be created. Instead UK banks preferred students & young persons to open saving accounts to operate their banking business. However, realizing that there may be a need for students & young persons to operate a current account in this modern-age, UK banks are now more willing to open current accounts, with zero lending availability, in the hope of keeping the business of these potential profitable customers of the future.

1.4 Graduate Current Account

Graduate current accounts offer those who have recently graduated from university a range of financial products to try and ease their transition into working life. Included among these could be interest free overdrafts up to certain thresholds, loans, credit cards, etc. Essentially graduate current accounts have developed as a result of UK banks having undertaken market research that shows graduates have a far greater earning power by the time they are in their mid to late 30s than those who do not graduate from university. For this reason, banks want to keep these accountholders and so try to ease their financial responsibilities directly following their graduation in the hope of enticing them to remain long-term bank customers.

1.5 Foreign Currency Current Account

Foreign currency current accounts are still a rarity. This type of account occasionally pays interest on deposits denominated in foreign currencies with a cheque-book withdrawal system. More often than not, foreign currency current accounts are denominated in US Dollars.

2. Savings Accounts

As with current accounts, savings accounts have come along way since their general introduction as a banking product in the early 1970s. Today it is possible to open:

(i) a traditional savings account;
(ii) a high interest savings account;
(iii) an ISA; and
(iv) an offshore saving account.

Importantly, the essential difference between a current account and a savings account (beyond the fact that a customer is not allowed to have an overdraft on a savings account) is that a prudent saver tries to save as much as possible whilst limiting the tax on their savings to as little as possible. Fortunately, by using such instruments as ISAs and offshore savings accounts, customers can now do this.

Nonetheless, standard prudent financial advice is that individuals always maintain - on easy to withdraw deposit - at minimum, enough to cover their next 90 days of expenditure (in case you suddenly lose your job!). Due to the structure of ISAs and offshore savings accounts, this may not be practical. For this reason savers also contemplate opening high interest savings accounts, which allow them to keep money readily available, and which pay less interest than other long-term savings accounts, but higher rates of interest return than standard deposit accounts.