Traditional the mainstay business of UK banks, current accounts operate in a manner whereby you simply deposit money into the account and then withdraw the money at any time without having to incur a penalty (or “breakage fee” as it is also known). The facilities offered by UK banks differ from bank-to-bank; and so, in this regard, it is important that you compare each bank’s product before deciding on which one will best benefit you.
In short, UK banks current accounts operate as follows:
You can deposit money into your account either via:
1. Bank Giro Credit (“BGC”)
A BGC is used to pay money into your account via the services of another branch of “your” bank or via another bank (who may charge you for this service). The BGC then goes through what is known as the “clearing system” before being deposited into your account. Generally this process takes 2 to 3 working days. If you have paid a cheque into your account this should not be too burdensome, as the time its takes for the BGC to process itself through the clearing system would be similar to the time it takes for the cheque to clear (be “paid” by the issuing bank). However, if you pay cash into your account using this system, you may lose the opportunity to claim interest on the money during the period it takes to be processed through the clearing system.
2. Automated Deposits
Automated deposits are where money is transferred into your account by means of a wire-transfer. Most popular use of this type of deposit service today is commonly known as the SWIFT system. However, traditionally this system is known as the telegraphic transfer system. In most cases, where you have your salary paid into your bank account directly, this will be the system used. A popular misconception here is that this system is “automatic”. Although this can be the case, by making payments in what is known as “same day funds transfer”, in most cases the process takes 1 to 2 days to be affected.
Another form of “automated deposit” often used to pay money into accounts, or from one account to another, is via a standing order. A standing order is an instruction to pay a fixed amount at a fixed time to a named bank account. This form of paying money into account is a popular choice with those who transfer money from one main current account into their savings account. However, you an apply this system so as to keep a minimum end of day balance on your current account and transfer money to and from your deposit account to cover your day-to-day expenses. This way you should be able to maximise your interest earnings. This system is commonly called “account sweeping”.
It should be noted that all the methods of depositing money into current accounts discussed above are not limited to current accounts but can also be used in the case of deposit accounts.
Withdrawing money from your current account can be effected by means of one of the following four principal methods:
1. Using Your Cheque-book
You can use your cheque-book either with your cheque guarantee card, in the case where you are giving a cheque to a merchant or store, or without your cheque guarantee card, in the case where you are giving a cheque to an individual. Where you give a cheque guaranteed by a cheque guarantee card, the bank is in effect promising to pay the cheque regardless of whether or not you have the funds in the account.
Because of this, three credit factors need to be considered when using a cheque guarantee card (a) you cannot give two cheques to the same merchant or store dated the same day with the same cheque guarantee card, as only the first (in numerical order) will be honoured by the bank if you don’t have the funds to cover the payment (in this regard, keep in mind that it is an offence in the UK to “post date” a cheque. To “post date” a cheque means to date a cheque ahead of the day on which it was issued, and banks’ do monitor your issuing of cheques to make sure this doesn’t occur); (b) due to the credit risk associated with cheque guarantee cards, there is a maximum limit per cheque of 100 Pounds; and (c) unless you open the account with a substantial opening deposit, it is unlikely you’ll be allowed to have a credit card immediately – you’ll likely need to prove your credit worthiness to your bank.
2. Using Your Automated Teller Machine (“ATM”) Card / Debit Card
You can use your ATM card at any ATM in the UK to withdraw money. Two considerations do need to be borne in mind: (a) the daily limit you have on cash withdrawals from ATMs; and (b) whether or not you’ll be charged for using another bank’s ATM. In the case of (b), it is worth noting that some banks have friendly relations with other banks whereby they have an agreement not to charge each others customers for using their ATMs. In need, you should check to see if the bank you bank with provides this service.
A debit card works in much the same way as a credit card, but rather than receiving a monthly statement of your account spending the money is automatically deducted from your current account balance. Different banks have different names for their debit card product, so you need to check which one your bank is offering to see if this system is freely available in most of the shops and outlets that you use.
3. Standing Order
You can withdraw money from your account to pay to another account via standing order. As previously mentioned, a standing order is an instruction to your bank to deduct a certain amount of money each month from your account to your nominated account. As well as being a popular method of saving money, this system is also used to more easily make payments to different types of loan accounts.
4. Direct Debits
Unlike a standing order, which, as mentioned, is an instruction to your bank to make a payment, a direct debit is a mandate given to a third party to make a request for payment on your account. Although these are usually for a fixed sum and date each month, they do not need to be. In particular, direct debits are popular methods of payments to make to pay for utilities bills (water, electric and telephone) and to store cards and charge cards (where the entire end of month statement amount needs to be cleared).