4.2 Different types of current account

What are the different types of current accounts?

• Standard current accounts, offering a full range of payment methods including debit cards and cheque book

• Packaged accounts, which charge a fee for including additional services with the account, such as travel insurance and car breakdown cover

• Basic bank accounts, which offer a debit card and/or cash card but no overdraft or cheque book

• Student accounts, often with an interest-free overdraft

• Youth accounts (for people under 18 years old)

• Premium accounts (for wealthy customers)

What are figures of the types of current accounts from 2011?

• Standard = 67%

• Packaged = 17%

• Basic = 9%

• Student = 3%

• Youth = 2%

• Premium = 1%

• Other = 1%

Who would a basic current account suit?

People who wish to avoid borrowing, such as those living on benefits or low incomes or people who have not held a current account before

What do basic bank accounts usually offer?

A debit card or a cash card but not an overdraft or cheque book, thereby limiting the possibilities of getting into debt

Does it cost money to have a basic bank account?

• Most basic current accounts can be operated free of charge

• However people with a history of fraud or who are bankrupt may need to pay a set-up charge and / or a monthly service charge

How might people choose to operate basic current accounts?

Using cash cards or pre-paid cards

How can pre-paid cards be used?

Can be loaded with funds from the account and then used to make purchases anywhere that the card is accepted

What do most basic current accounts offer?

• Direct debits and standing orders to pay bills

• Providers will not make these payments however if the account does not have sufficient funds to pay the transaction

When where basic bank accounts introduced?

In 2004 as part of the government’s pans for financial inclusion - ensuring that people have accesses to banking services

What was the governments ‘shared goal’ with the main high street banks?

To halve the number of people without bank accounts by 2009

What are some ways identified in the treasury report that people without a bank account are disadvantaged ?

• They cannot pay direct debit meaning they are unable to take advantage of any services that require regular electronic payments, such as mobile phone contracts or internet accesses

• They pay higher energy costs because they use pre-paid meters rather than direct debits - energy companies often offer discounts to people who pay direct debit

• They can also cannot make payments over the telephone or online

In 2004 how many people in the UK did not have a bank account?

2.7 million people

• By 2010 1.1 million of these people has a bank account, with 7 in 10 of them opening a Post Office Card Account

Why will individuals with a Post Office Card Account need to change accounts?

The Post Office’s contract with the Department for Work and Pensions will cease in November 2022

What % of active accounts where basic bank accounts in 2011 according to the to the Office of Fair Trading’s in 2013?

9%

What is an active account?

One that has had a transaction within the last three months

Who are youth current accounts available for?

People aged under 18 years

What do youth accounts not offer?

Overdraft facilities because people need to be aged 18 or over to enter into a contract to borrow money

What do youth accounts offer?

A range of services, depending on the account and the age range of the intended account holders

What % of current accounts where identified to be youth accounts by the Office of Fair Trading in 2013?

2%

• This is probably because many young people use savings accounts to manage their money instead of current accounts

When do people often get their first current account?

When they start work and their employer wants to pay them electronically

What do standard current accounts offer?

The full range of current accounts facilities such as receiving payments, a cash card or debit card, direct debits, standing orders, overdraft, cheque book, online banking, mobile banking and text alerts

When might a standard current account not be free of charge?

When the account holder uses the overdraft facility or requests services that incur a charge, such as another copy of their statement

Standard current accounts suit what people?

Most people who wish to pay bills by direct debit, manage their money using a variety of communication channels and borrow money for short periods of time

How can text alerts be useful?

By telling account holders when their balance is low so they can avoid going overdrawn

According to the Office of Fair Trading’s 2013 report what % of the current accounts used in the UK are standard accounts?

67%

What are student and graduate accounts?

These accounts are variations of the standard current account tailored to the needs of students in higher education and recent graduates

What are the key features of student and graduate accounts?

• Low interest or no interest overdraft facility

• Incentives such as discounts on contents or travel insurance policies

Why do providers wish to attract students to their current accounts?

As some will be high earners in the future

According to the Office of Fair Trading’s 2013 report what % are student and graduate accounts of the current accounts used in the UK?

3%

• This is probably because student current accounts are only available to people who are studying

What happens once students graduate?

They need to switch to a graduate of standard current account

What do some current accounts pay?

Interest on credit balances

Give an example of interest paid when in credit

The FlexDirect account from Nationwide Building Society, which pays interest at 2% AER a year on £1500, before dropping to 0.25% in the second year

What are some examples of conditions usually attached to these current accounts?

• Paying in a minimum monthly amount

• Keeping the account in credit

• Banking online or by telephone

• Interest is paid on balances between certain minimum and maximum amounts

• May also be feed for holding the account

Which people may find these accounts suit their needs?

People who usually have a budget surplus

Why is caution required with these current accounts?

• Going overdrawn on these accounts can incur charges that are greater than the interest or reward paid

• Some accounts require a minimum balance to be maintained such as £1000

• People may find that their surplus can earn higher AERS in savings accounts that have fewer withdrawal restrictions

Who are joint accounts held by?

Two or more people

Which current accounts can be held in joint names?

Most types

Who do joint accounts suit?

People who share finances, such as married couples and those in civil partnerships, and people sharing a rented home

Who are joint accounts not suitable for?

People who have different priorities or attitudes to managing money

How can this be resolved?

• If they wish to pool some incomings in a joint account to pay for joint outgoings, account holders mau wish to draw up clear rules for how the account will be operated and who will be responsible for managing it

• The provider will need to know who can withdraw funds from a joint current account, and if a signature is required from more than one of the account holders to make a withdrawal

What happens if a joint account becomes overdrawn?

Then all account holders are responsible for repaying the fullt amount

What can provider do to overdrawn joint accounts in some circumstances?

Take money from one person’s account to repay the overdraft on a joint account that bears their name

What do packaged current accounts offer holders?

Extra benefits for a monthly fee

What might these benefits include?

The benefits vary from account to account

• Mobile phone and travel insurance

• Car breakdown cover

• Discount in stores

• Subscriptions for media services

What can the account fee vary from?

From £2 to £20 or more per month

According to the Office of Fair Tradings, what % of UK current accounts awhere packaged accounts in their 2013 report?

17%

Why might people find packaged accounts suitable?

If the costs of the benefits they will use are greater than the annual account fee

What are premier accounts designed for?

Wealthy customers

What do premier accounts offer?

A range of additional services such as a personal banker to help account holders manage their finances and banking products

What do premier account holders have to have?

A certain level of income and / or funds to save or invest to be eligible for premier accounts

• For example, earnings of £75,000 or more

According to the OFT report what % of UK current accounts are premier accounts?

Only 1%