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.
Authorised banks, building societies and credit unions in the UK are backed by the Financial Services Compensation Scheme. This means that if the financial institution fails and is unable to repay the money you’ve deposited, eligible deposits be compensated 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 accounts: a traditional bank or transaction account that will have a debit card linked to it that you can use for purchases. This is where your salary can be paid and also where you can send money from.
Saving accounts: there are several types of savings account in the UK. There are accounts that reward you for regular saving and also ISAs. ISAs enable you to reduce the amount of tax you pay on any interest earned.1
Credit cards: 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.
Personal loan: a loan where you borrow a lump sum and make regular repayments, paying interest on the amount owed.
Mortgages: a loan where you borrow a lump sum to buy a property and make regular repayments, paying interest on the amount owed. Otherwise known as a home loan.
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
pay in cheques
BIC: this stands for Bank Identifier Code. It's a number that identifies your bank and is needed if you want to send or receive automated international payments.
Direct Debits: Direct Debits are used to make regular payments from your bank account to another account (such as an electricity provider). Unlike a standing order, the amount paid by a Direct Debit can be changed by the payee, 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. It may be additional to the account number and may be needed if you want to send or receive automated foreign currency payments.
National Insurance: if you’re over 16 and earn more than £162 a week from your employer or £6,205 a year if you’re self-employed, you’ll need to pay NI.2 These 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.