Banking. Clearly Explained.

Storing your hard earned money. Can it be that complicated? Here’s what you need to know.

Bank

The banks really want you as a customer

Us in the UK are how banks make their money. And to do that effectively, they need to get us to open a current account with them – that’s a normal bank account where you might pay your salary into. 

Why do they want us so much? To sell us other financial products such as loans and mortgages where they make a lot of money.

Incentives to switch

To switch current accounts, some banks will offer cash, as much as £125, some offer cashback when paying bills and some offer fairly high interest rates on your cash. It’s great for us, the customers and you don’t even need to do any hard work switching – the banks do it all for you under the current account switch guarantee.

Compare current accounts

The rise of digital banking

Now technology has advanced so much, especially on mobile phones, we’ve seen a rise of banks that don’t have any branches on the high street at all, and some don’t even have a website where you can manage your account – It’s all through your phone on an app.
 
They are quite good, with helpful features such as budgeting and immediate spending alerts, along with providing insights into your spending habits, such as where all your money goes! 

They’re secure and regulated banks, your money is protected under the FSCS scheme up to £85,000. 

The two main digital banks are Starling Bank and Monzo.

Overdrafts

One of the main benefits of a current account is the ability to go overdrawn, that is, your bank will let you spend money you don’t have up to a certain amount. You will be borrowing this money however, and should not do this regularly, it’s really only for very short term borrowing or emergencies – it is expensive debt. 

There’s two types of overdrafts, arranged and unarranged. An arranged overdraft is a certain limit the bank is happy to let you spend, and sometimes this will be 0%, but not normally. 

An unarranged overdraft is exceeding this limit, the bank has not authorised you to borrow this money. You used to be charged a lot for this, and still are, but as of April 2020, they can only charge a simple annual interest rate for all overdrafts instead of fees, and this can be as high as 39.9%.