A3 - Current accounts

How many different types of current accounts are there? 

• 4 

What are the different types of current accounts?

• Standard

• Packaged/premium

• Basic 

• Student

What is a current account?

• A current account is a type of account offered by banks and building societies for frequent use

What is a standard account - features + advantages and disadvantages?

• A standard account is the most common account for individuals assuming they have an OK credit rating

Common features include:

• Can set up direct debits and standing orders

• Issued with a cheque book and debit card

• Can pay cash in e.g. wages can be paid directly into the account

• Can make cash withdrawals

• May offer an overdraft limit

• Pays and charges interest depending upon whether the balance is positive or negative

Advantages:

• Widely available

• Overdraft facility

• Range of services

Disadvantages:

• Limited additional benefits

• Charges on overdraft, bounced cheques etc can be high

• Overdrafts can encourage debt

What is a packaged/premium account + advantages and disadvantages? 

• Offers the same facilities as a standard account but bundled with an additional ‘package of services’ 

Examples include:

• Free insurance e.g. home, mobile phone

• Break down cover

• Cash back

• Works out cheaper to pay for the premium account rather than paying for the services offered in the package separately

Advantages

• Range of services

• Additional benefits

• Ease of coordinating different aspects on personal finance e.g. insurance included so don’t have to shop around separately

Disadvantages 

• Often charge additional fees

• Generic rather than tailored to individual needs e.g. travel insurance may be of no added benefit

What is a basic account + advantages and disadvantages?

• Offers only some of the features of a standard account to those with a low credit rating who may otherwise struggle to open an account

• Customers are seen as high risk and therefore not offered credit

• Can still pay money into the account and make cash withdrawals - assuming sufficient funds

• No overdrafts

• People who just came to the country may have one or someone that just got out of prison

Advantages

• An opening account for those who may otherwise struggle to be accepted by a financial institution

• A bank account may be a necessary condition for employment

Disadvantages

• Limited services

• May attach a stigma

What is a student account + advantages and disadvantages?

• A current account designed to meet the specific needs of students

Features are likely to include:

• Process to pay university and tuition fees

• Standing order for accommodation

• Limited overdraft facilities

• Incentives to join that particular bank

• Payment of student loan into the account

Advantages

• Interest free overdraft

• Freebies

• Extend overdraft limit

• Discounts and cashback

• Student specific services

• Transition to graduate account

• Set up a direct debit and standing order

• Can withdraw

Disadvantages

• Potential credit damage

• Encourages needless spending/ can encourage overspending

• Limited eligibility