Types of bank accounts

Banking jargon can be messy, and in order to find the best account for you, you first need to figure out which type of bank account you are after.

Most of us need at least one bank account, and often more than one. But what type of bank account should you be looking at?

That’s hard to figure out unless you know what types of bank accounts exist. We’ve put together a basic list here that should hopefully give you an idea of what it is that you are actually looking for.

Current accounts

Current accounts are for managing your day-to-day finances. You can have your salary paid in, get a debit card to make payments in shops and online, withdraw cash from the ATM, arrange direct debits and standing orders, make bank transfers, pay your bills and so on.

Pretty much every adult has a current account of some kind, and that’s usually what people are referring to when they say “bank account”.

Current accounts can have a wide range of features and perks, such as overdrafts, insurance options, and so on. Depending on the bank, they can be managed online, via a mobile app, in-person or over the phone.

There are many different types of current accounts, many of which are covered below.

Savings accounts

As the name suggests, these are to keep your savings separate from the rest of your money. You can pay money into a savings account, and withdraw money from it if you need it, but you can’t really do much else. Unlike most current accounts, savings accounts normally will pay an interest on your deposits.

There are different types of savings accounts too, including:

  • Easy access savings accounts. These are savings accounts that let you withdraw your deposits any time if you need them. For this reason, they tend to offer lower interest rates.
  • Fixed rate bonds. Fixed rate bonds only last for a set period of time (typically between one and five years), after which they “expire”. During that period of time, you are generally not allowed to withdraw your money. They offer better returns compared to easy-access accounts.
  • Cash ISAs. Cash ISAs can be either easy access or fixed rate. They are set apart by the fact that the interest you earn on your ISA deposits is entirely tax-free.
  • Regular savings accounts. These accounts are meant to help you build up your savings. They have competitive rates, but only last for a limited time (often a year) and only allow you to deposit a few hundred pounds a month.

Basic accounts

Basic accounts are a type of current accounts. However, they offer less features compared to a standard current account: for example, they usually don’t have overdrafts. They also tend to have lower limits, for example on ATM withdrawals.

Basic accounts are meant for people who don’t qualify for full current accounts, for example because they have bad credit. A basic current account still allows you to perform the most basic financial transactions, such as receiving your salary or paying your bills.

Business accounts

When people talk about business accounts, they usually mean business current accounts. As the name suggests, these are current accounts meant for business purposes.

Business accounts can be opened by a sole trader or freelancer, or (more often) by the directors of a company. A limited company is a separate legal entity which needs its own bank account; for a range of legal and tax reasons, you can’t just use a personal one for it.

Business current accounts are very similar to personal current accounts and are meant for managing your business’ finances on a daily basis. They can be used to take payments, send bank transfers, and so on. Many also have dedicated business features, such as the ability to accept card payments or integration with accounting software.

Business savings accounts do also exist; most traditional banks offer them, although they tend to pay very low interest rates.

Student and graduate accounts

Students accounts are current accounts only students are eligible for. They usually come with great perks you can only dream of once your uni days are over, such as interest-free overdraft, cashback and travel discounts.

Once you graduate, you can usually get a graduate account for a period of time. A graduate account will also have some nice perks, but is ultimately a way for banks to smooth the transition to a standard current account as you start your adult life.

Children’s accounts

This is a generic term that covers a range of bank accounts aimed at children:

  • Children’s current accounts. They have almost the same features as adults’ current accounts, but without overdraft.
  • Children’s savings accounts. These can be easy-access savings accounts that children can use together with a current account, to learn about saving and finance. Or they can be savings accounts (of various kinds) that adults can use to put money aside to benefit a child. Interest rates on children’s savings accounts tend to be more competitive compared to standard savings accounts.

Joint accounts

Joint accounts are current accounts that are jointly owned by two people who need to manage some of their finances together. Joint account are often used by couples, but can also be opened by flatmates, family members, friends… there is no rule.

Joint accounts work just like standard current accounts, except that both account holders will be able to manage the account and have a debit card to make payments and withdraw cash.

They can be great to pay bills, divide the cost of meals and holidays, and generally keep on top of shared finances. But joint accounts create a financial association between two people, so make sure you only open one with someone you completely trust. It can impact your credit score if things go wrong.

Packaged accounts

This is another type of current account. It comes with a “package” of benefits, that can include various types of insurance (travel insurance, breakdown cover and so on), as well as additional rewards such as cashback.

It’s a neat way of sorting out insurance for the whole family, but packaged accounts come for a pretty expensive monthly fee. Make sure you really need all the benefits offered before getting one.

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