Types of Bank Account
What Is a Bank Account?
A bank account is a secure place to store your money, managed by a bank or building society. It acts as a digital wallet for your finances—a record of your money going in and out, whether that’s from your job, your benefits, or your savings. Bank accounts help you:
Keep your money safe from theft and loss
Get paid (by employers, government, or others)
Pay for goods and services (online, in shops, or by direct debit)
Build up savings
Access extra features, like budgeting tools, rewards, or interest
Today, bank accounts are mostly managed online or via mobile apps, making money management easier than ever.
Why Do You Need a Bank Account?
Bank accounts are essential for modern life in the UK. You’ll need one to:
Receive wages or benefits
Pay bills (utilities, rent, subscriptions)
Shop safely (with a debit card or online)
Build your credit history
Save for goals, big and small
Many employers and government agencies will only pay you directly into a bank account. And with cash use declining, it’s more important than ever to have access to banking.
Choosing the Right Bank Account for You
With so many options, how do you pick the right account?
Start by asking yourself:
What will I use the account for? (Everyday spending, saving, sharing money, or investing?)
Do I need easy access or am I happy to lock my money away for better returns?
Would I benefit from perks or rewards?
Is customer service or a mobile app important to me?
Remember: it’s normal (and often smart) to have more than one account, e.g., a current account for spending and a savings account for emergencies.
Main types of Bank Account
Bank Accounts for Everyday Use
- Who it’s for: Anyone, but especially if you have poor credit or are new to the UK.
- Features: Lets you pay in, withdraw, and pay bills. No overdraft, but usually free.
- Tip: Good starter account if you can’t get a standard current account.
- Who it’s for: Most people, for daily money management.
- Features: Debit card, standing orders, direct debits, mobile banking, some with arranged overdrafts.
- Extras: Some “packaged” accounts include insurance, breakdown cover, or cashback for a small monthly fee.
- Who it’s for: Students and those recently graduated.
- Features: Larger interest-free overdrafts, discounts, freebies.
- Tip: Compare overdraft limits and benefits, as these vary widely.
- Who it’s for: Couples, housemates, or family who share bills.
- Features: Two or more people can pay in, spend, and see all transactions.
- Caution: All account holders are responsible for debts.
- Who it’s for: Under-18s.
- Features: Teaches saving and spending with parental controls. Often offers decent interest and no fees.
Savings Accounts
- Withdraw any time. Ideal for emergency funds and short-term goals.
- Variable interest rate, so check if better offers appear.
- Online-only. Often higher rates than branch-based savings, managed via app or website.
- Better rates for locking in money. Need to give notice (e.g., 30 or 90 days) before you withdraw.
- Lock away your money (typically 1-5 years) for a higher, fixed interest rate. Penalties if you withdraw early.
Individual Savings Accounts (ISAs)
ISAs let you save or invest money tax-free up to an annual limit (£20,000 for adults in 2024/25).
| ISA Type | What It Does | Who It’s For |
|---|---|---|
| Cash ISA | Like a savings account but tax-free | Cautious savers |
| Stocks & Shares ISA | Invest in funds, shares, bonds—tax-free | Those happy to take investment risk |
| Innovative Finance ISA (IFISA) | Peer-to-peer lending—higher risk/reward, not FSCS protected | More adventurous savers |
| Lifetime ISA (LISA) | Save for a first home or retirement, with a 25% bonus | Aged 18–39, up to £4k/year |
| Junior ISA (JISA) | Tax-free saving for under-18s, cash or investments | Parents/carers saving for kids |
How to Pick the Right Account (Quick Checklist)
- For everyday money? Current Account
- Struggling with credit? Basic Account
- Saving for emergencies? Easy Access Savings
- Happy to lock money away? Notice or Fixed Rate Account
- Want to pay less tax on savings? Cash ISA or Stocks & Shares ISA
- Saving for a child? Junior ISA or Children’s Account
- Getting perks or cashback? Packaged or Reward Current Account
- Need an overdraft? Student or Current Account with a good rate
Other Useful Tips
Shop around: Banks compete for your business—compare rates and perks.
Check FSCS protection: Most UK accounts are protected up to £85,000 per person, per bank.
Read the small print: Watch for monthly fees, overdraft charges, or withdrawal restrictions.
Switching is easy: The Current Account Switch Service moves your direct debits and payments for you, often with a bonus.
Summary
Navigating the world of bank accounts can seem overwhelming, but understanding the main types and what they offer will help you choose wisely.
Start with your needs: Do you want easy access, the best rates, or tax-free saving?
Use more than one: Mix-and-match to make your money work harder.
Review regularly: Your needs and the best deals change over time.
Still not sure? Use comparison tools, or talk to your bank or a financial adviser for help choosing the best account for you.