Opening a bank account can be a bewildering experience, especially for those going through this process for the first time. A glance at any money comparison site will reveal a lengthy list of current accounts, with most banks offering more than one offering. Indeed, banks will typically offer Student Current Accounts, Basic Bank Accounts, Standard Current Accounts, and Packaged (or value added) Current Accounts. Additionally, they may offer Private Banking accounts for high wealth customers. Let’s look then at these main classifications and their similarities and differences.
Basic Bank (Current) Accounts:
Financial exclusion has been a major problem in the UK (and in other countries) and the government therefore pressed the banks to introduce a scheme known as Basic Bank Accounts. The premise of these accounts is that they provide access to a cash card but do not allow the user to have either an overdraft, debit card, or chequebook. The fact that there are no credit facilities attached to the account means that it is not possible to go overdrawn on the account, and also means that the provision of them doesn’t have to be subject to a credit score.
Basic Bank Accounts will be attractive to people who might otherwise fear being rejected for a standard current account, or who are concerned that they would run up debt if given access to a debit card or an overdraft. They are often the entry level account and customers may then qualify to upgrade to a current account with more comprehensive features.
Standard Current Accounts:
These accounts offer all the banking features that you might reasonably expect to find with a current account. A debit card, chequebook and/or authorised overdraft will be available, subject to a credit score process. Additionally, you will be able to set up direct debits and standing orders and make international payments. Additionally, some interest will be paid on positive balances although the rate offered is often low.
An important feature of standard current accounts is that you will not pay a monthly subscription fee just to have the account. You may, of course, incur bank fees if you go into an unauthorised overdraft position but you do benefit from the UK’s policy of free banking provided that you maintain your account sensibly.
Packaged Current Accounts:
Packaged Accounts (also sometimes referred to as value added accounts) offer all the standard features that you would get with a standard current account. However, in addition, they will provide access to a range of additional benefits. These benefits can differ substantially but may include things such as preferential rates on savings account or travel money. Or you may get access to free or discounted breakdown cover, or discounts at hotels or restaurants, or free access to airport lounges.
It costs banks money to offer these bundles of additional features and they therefore charge a monthly subscription fee in return for the services that you get access to. It’s important therefore that people weigh up how much value they would get from the added benefits, versus the yearly cost. And it’s also important then to make sure that you make full use of all the services that the bank is making available to you.
Packaged accounts remain slightly controversial but can be a valid and useful option provided that the benefits that they offer are relevant for your lifestyle.
Student Current Accounts:
Banks offer specific current accounts for students. A key feature of these is the overdraft facilities that are offered and the limits offered may sometimes vary upon the course you are studying and your year of study. Student accounts are also famed for the freebies that are offered at account opening (such as Student Railcards). These can be a nice extra but it’s important that students base their choice of account on the quality of the account features offered. After all, money is likely to be very tight during the duration of study so a low overdraft interest rate will probably outweigh the benefit of that one-off incentive.
Private Banking Accounts:
If you have a lot of money and want the benefits of having additional benefits and a more personalised service, then you may decide that a Private Banking Current Account is for you. These can be regarded generally as another type of packaged account but with the additional account features being more tailored to those with large assets and income. There will usually be either a monthly subscription charge or a yearly charge to get access to these accounts and you will have to meet eligibility requirements that are typically linked either to size of salary or amount of assets held.
Summary:
Banks offer a range of current accounts and these categories are aimed at meeting the differing needs of customers. Choosing the account that is most suitable for you may require a little research and balancing up the features offered against your immediate needs. Banks will normally facilitate upgrades (or downgrades) between account types, so you can always switch accounts if you feel that you are not getting everything that you need from your account.
Sources / Additional information:
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/BankAccountsAndBankingProducts/DG_10035164