UK banking basics
Banks offer various types of account to suit various purposes. Some accounts are designed simply to allow quick and easy access to your money while others are designed to let your money grow via investments.
The most basic type of account is a current account. This is an instant access account into which deposits can be paid and from which withdrawals can be made at any time.
A current account usually gives you a range of methods for controlling the flow of money into and out of your account. These include a service card, cheque book, debit card as well as automated payment facilities such as direct debit and standing orders.
Compare UK Current Accounts
ATM
An ATM (automated teller machine), also referred to as a "cash machine" or "hole in the wall", is an unattended machine (usually found outside a bank) that allows you to access your bank account 24 hours a day.
ATMs offer many of the banking services that can be performed over the counter at your branch, such as cash withdrawals, deposits and account balance inquiries.
For security reasons there is usually a limit on the amount of money that you can withdraw via an ATM in any 24-hour period.
ATMs in the UK are usually free to use. However, it is always best to check first. "Link" machines tend to charge a flat fee of around £1.50 for a cash withdrawal. You are also likely to incur a charge when using an ATM overseas.
Service card
A service card, also referred to as a "cash card", is a piece of plastic that you put into an ATM to access your account details, make withdrawals, etc.
A service card sometimes also serves as a debit card.
Debit card
A debit card is a piece of plastic that allows you to make purchases without cash. Unlike a credit card, debit cards are directly linked to your bank account. When you make a purchase using your debit card the funds come out of your account immediately.
Credit card
A credit card is a piece of plastic that gives you the power to make purchases now and pay for them later. It acts to assure a seller that a) the person using it has a satisfactory credit rating and b) the card issuer will see to it that the seller receives payment for the merchandise delivered.
A credit card is different from a debit card in that the credit card issuer lends you money rather than removing the money from your account. The card issuer will usually charge you interest on this amount that it lends you until you have paid it back.
Credit cards come in all different shapes and sizes:
Charge card
A charge card is like a credit card only the whole balance has to be paid off each month. Business "credit cards" usually act as charge cards or debit cards.
PIN
Every service, debit or credit card has a private identification number (PIN) associated with it. This ensures that only you, as the card owner, can use the card to access your account, make purchases, etc.
Overdraft
A bank will usually allow you to withdraw more money than actually exists in your account. This "negative" balance is referred to as an "overdraft".
Your bank will usually agree a limit to the size your overdraft can be. If you exceed this limit you will usually be charged a fee.
Occasionally, an overdraft facility will be free (as long as you do not exceed your agreed overdraft limit). However, banks usually charge you interest on your overdrawn balance. To find out how much interest you will be charged look for the advertised AER rate on your account.
Bank charges
Bank accounts are usually free to open. However, you can be charged fees in certain circumstances, such as when you exceed your overdraft limit or have a cheque or direct debit payment bounce (i.e. when you attempt to pay for something with money you don't have).
There has been a lot in the press recently regarding unfair or illegal penalty charges made by banks. The argument is that the charges levied by the banks far exceed the cost of their customers' transgressions and are therefore unlawful. This has led to a bandwagon of customers taking their banks to court to reclaim these fees, in most cases successfully.
Now there is a High Court test case in progress, meaning that all individual bank charge reclaiming cases have been put on hold. However, customers can still continue to reclaim penalty charges made by their credit card providers.
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