Getting your head around all that's available will mean you can make the most of your money and help prevent any mistakes. Here’s an outline of some of the basics.
Most banks, building societies and credit unions in the UK are backed by the Financial Services Compensation Scheme (FSCS). This means that if they fail, the FSCS will automatically pay compensation up to £85,000 on an individual account and £170,000 on a joint account.
Most banks in the UK will offer a range of products such as:
Current account: a day-to-day account that comes with a debit card you can use to buy things. Not all cards are physical now. Some accounts offer digital cards as standard and there’s a charge to receive a physical debit card. You can have your salary paid into a current account and use it to send money to other people or pay bills.
Savings account: there are several types of savings account in the UK. There are accounts that reward you for regular saving and also ISAs. ISAs allow you to reduce the amount of tax you pay on any interest earned.1
Credit card: a way of borrowing money up to a certain limit where you make regular repayments on any money you owe. If you carry a debt from month to month, you'll be charged interest on the money you owe.
Mortgage: a long-term loan where you borrow a lump sum to buy a property and make regular repayments, paying interest on the amount owed. Mortgages are secured against your property, so bear in mind, your home may be repossessed if you can't meet your payments.
Personal loan: this type of loan could be for something like buying a car or improving your home. As with a mortgage, you borrow a lump sum and make regular repayments, paying interest on the amount owed. Personal loans are usually paid off over a shorter term than a mortgage.
UK banks also offer different ways to access your accounts:
Beyond the different banking products, there are some different labels and names you'll see and hear.
Account number: a unique number given to your bank account.
AER: the annual equivalent rate (AER) is the way banks show the potential interest earnings on a savings account or investment product over the course of a year. AER shows what you would earn over a year if you put money into an account and kept it there.
APR: the annual percentage rate (APR) is the way lenders show the potential cost of borrowing money over a year on credit cards and loans. It takes into account interest, as well as other charges you'd have to pay such as an annual fee. This is done in a standardised way across banks to allow you to compare the cost of products from different lenders.
ATM: you can use automated teller machines (ATMs) to withdraw cash from your current account and check your balance. They’re also known as cash machines.
BIC: this stands for Business Identifier Code. It's a number that identifies your bank and is needed if you want to send or receive automated international payments. It’s also sometimes called a SWIFT code.
Direct Debit: this is used to make regular payments from your bank account to another account (such as an electricity provider). Unlike a standing order, the payee can change the amount paid by a Direct Debit, but they have to give you notice of this.
IBAN: this stands for International Bank Account Number. It identifies accounts held at any bank in any country or region. You may need it if you want to send or receive automated foreign currency payments.
National Insurance: if you’re over 16 and earn more than £184 a week from your employer or £6,515 a year if you’re self-employed, you’ll need to pay National Insurance (NI).2 These figures are correct for the 2021/22 tax year. NI contributions go towards welfare benefits such as the State Pension, maternity pay and the Jobseeker’s Allowance.3
Sort code: this is a 6-digit code that identifies your bank branch.
Standing order: a regular payment you make from your bank account. You might set up a standing order for a monthly charity donation or for other regular payments to friends and family.