Opening a bank account

Our explainer on banking will tell you all you need to know about banking in the UK, and the things to look out for to make sure you are managing your money in the best way for you, your lifestyle and your future. 

Why do I need a bank account?

Money is an essential part of our lives, and something many of us use daily in order to buy things that we want and need – products, services and experiences. 

It has a long and fascinating history, and we’ve come a long way from bartering to exchange goods for other items to all of the digital banking options we have today. 

As human society became more complex, it became necessary to find a way to use something to represent and store value. This meant moving from bartering to using gold, feathers and even cowrie shells, which evolved over time into the use of coins, paper money, credit cards and debit cards.

Ultimately, money has value because people believe they will be able to use it to pay for goods and services in the future – it has value because people agree to give it value. 

People joke about keeping their money under the mattress, but that’s a bad idea for a lot of reasons including risk of theft, risk of natural disasters or accidents, and it loses value over time due to inflation (Link to explainer content on inflation) if it’s just sitting there. 

The most common way for people to manage their money is with bank accounts held with banks which are regulated by the Financial Conduct Authority (FCA) and where the money is protected by the Financial Services Compensation Scheme (FSCS) in the event that the financial firm fails or goes out of business.   

Is my money safe in the bank?

In the UK, there are protections in place to ensure that your money is safe. 

Companies that offer financial services or operate in the financial industry have to follow specific rules and laws. These rules and laws are also known as financial regulation. 

  • What is the FCA?

In the UK, the financial services industry is regulated by the Financial Conduct Authority (FCA). The FCA is a publicly funded independent organisation that works with HM Treasury to protect consumers, keep the industry stable and to promote healthy competition between providers of financial services. 

Companies that provide financial services must follow the standards set by the FCA in order to keep doing business in the UK. 

  • What is the FSCS?

The Financial Services Compensation Scheme (FSCS) protects customers from losing all of their money. It works by paying up to £85,000 per person per firm if their bank goes out of business. So if you have £100,000 in a savings account with one bank, and it goes bankrupt, you’ll receive £85,000 of your money back, not the full £100,000. If you have £100,000 saved with two different banks – let’s say £50,000 with one bank and £50,000 with a different bank – then you would get £50,000 back for each one. So you’ll be compensated for the full £100,000. 

The FSCS is independent and fully funded by companies working in the financial services industry.

What is a current account?

A current account is a type of bank account where you can deposit and withdraw money. It allows you to easily manage your day-to-day income and spending. 

Current accounts are the most common type of bank account in the UK.

Many people use current accounts to receive salary or benefits payments, pay bills, set up direct debits and standing orders to make regular payments, withdraw cash from ATMs and make payments with a debit card.

Will I be charged a fee to have an account?

Most basic bank accounts offered by high street banks don’t charge a fee to just open or maintain an account. But there are some cases when you might be charged a fee.

Some common charges include:

  • Overdraft interest and charges
  • Transaction fees for unapproved overdrafts
  • Charges for declined Direct Debits standing orders
  • ATM fees
  • Foreign transaction fees
  • Fees for one-off requests

All banks have to provide a full list of the fees they charge. The easiest way to check these is on their website or in their app. 

Some banks offer accounts with more exclusive benefits and services targeted at higher earners. These ‘Premier’ or ‘Platinum’ accounts do charge fees to access their services.

What’s an overdraft?

Some current accounts have an overdraft feature which allows you to borrow money in the short-term to make a payment if the balance in your account is too low to cover the cost. This means that if your account goes below £0, you’re using your overdraft. 

For example, if your weekly grocery shop costs £40 but there is only £20 in your current account, if you have an overdraft you can still pay for it because your bank will allow the transaction to happen. But your new balance will be -£20 and you will have to repay the £20 you borrowed to complete the payment. So, an overdraft is basically like a loan, and banks will often charge you interest on it. 

If your overdraft is arranged with your bank there will be an agreed limit on how much you can owe, usually without being charged interest. If you go below this amount or you don’t have an agreed overdraft, then there is a chance you might have to pay interest on the amount you borrowed. It’s really important to make sure you’re aware of any overdraft limits you have on your accounts. 

How many accounts do I need?

Many people have at least one current account and one savings account to manage their money. But with so many new challenger banks, online banks and app-based banks offering new and different features, there’s no limit to the number of accounts you can open and what you can use them for. Some banks have ‘pots’ or ‘jars’ you can set up for specific saving and spending categories. Automatic savings apps either work out how much money you can afford to save each week and send it to a separate savings account, or use a round-up feature where your spare change is automatically saved or invested. 

This is designed to make saving easy and effortless, and help get you into the habit of saving if you are new to saving money. 

What’s a debit card?

A debit card is a type of payment card – usually plastic – issued by your bank, which you can use to make purchases. The money comes out of your account directly. It’s different from a credit card, which you pay off at the end of the month.

Tips for managing your bank accounts

  • Make a regular habit of checking your bank statements. This will help you spot any fraudulent activity happening in your account so that you can report it to your bank. 
  • Make sure you are aware of any banking fees linked to your account, such as overdraft allowances fees, account maintenance fees, paper statement fees, ATM fees and charges for overseas cash withdrawals or debit card spending so that you can be prepared for them.
  • Download your bank’s app on your smartphone to use mobile banking.
  • Consider using an app or direct debit to automate your savings.
  • Research and compare interest rates on savings accounts from time to time, so that you can make sure you are getting the best available interest rate. There are many websites that make this step easy. 
  • If you’re not happy with the services that your bank provides, consider switching banks.

Octopus Money Limited is an appointed representative of Octopus Investments Limited which is authorised and regulated in the UK by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England & Wales under No. 14069098.

Octopus Money is a trading name of TW11 Wealth Management Limited. Registered in England and Wales (No. 10339119). Authorised and regulated by the Financial Conduct Authority. Our Financial Services Register number is 763630.

As with all investing, your capital is at risk. If you choose to invest with Octopus Money, the value of your investments can go down as well as up and you may get back less than you invest.