The banking system in England
When you arrive in the UK, whether for work or study, you must open a bank account. A bank account will help you receive your salary, pay your local bills, and save money. Procedures relating to opening a bank account in the UK are pretty straightforward as long as you have the required documents.
Savings and Current accounts in the UK
The UK's most common bank account types are the Current and Savings accounts. Both accounts allow you to pay other accounts, deposit money, and withdraw money. They also give you access to secure banking apps and online banking. However, a Current account has fewer limitations regarding daily transactions, thereby being more suitable for entrepreneurs and self-employed people who need to access their accounts frequently. On the other hand, the Savings account is ideal for employees with a monthly income. Also, another significant difference between the two accounts is the overdraft, which is an option for Current accounts. For example, you can withdraw up to a certain amount of money from your Current account that is not actually in the account (overdraft). Lastly, the minimum balance required to maintain a Savings account is lower than that needed for a Current account.
Good to know:
Within the two types of accounts (Savings and Current), there are subcategories depending on the bank (e.g., Current Student account, Children's Savings account, Currency account, etc.).
Attention:
When using your debit card, be aware of extra fees such as foreign transaction fees and cash withdrawal fees.
How to open a bank account in the UK
In general, you need four types of documents to open a bank account in the UK:
- Proof of identity (i.e., passport, driver's licence, identity card, UK biometric residence permit for students);
- Proof of address (i.e., utility bill, Council Tax bill, rent agreement, telephone bill);
- Letter from university or letter from employer, especially for non-British citizens;
- Proof of income (i.e., pay slips, bank statements, P60 UK tax form).
Tip:
Many banks check new customers' credit history through Credit Reference Agencies (CRAs) before opening a Current account. You can check your credit history in advance by contacting one or all of the three CRAs: Experian, Equifax, and TransUnion.
If you are new to the UK, getting proof of address can be difficult in the first few months, but banks might be willing to accept:
- A letter from a UK university admission office;
- A letter from Jobcentreplus confirming your national insurance number;
- A letter from your employer that is less than three months old.
Once your documents are ready, you can book an appointment to open a bank account online, via the phone, or directly at the bank. Once the bank opens your account, it should be operational within a few working days (usually 3 to 5). Depending on your bank, you may wait up to 15 working days to receive your debit card via post.
Good to know:
If your bank has a correspondent relationship with any branch in the UK, you can also open an account before arriving in the UK.
Banks in the UK
The UK is a competitive market. Therefore, the banking sector provides attractive offers and competitive rates. Research well before choosing the best interest rates and offers depending on your needs. Below are some of the most popular banks in the UK:
An alternative option to traditional banks is building societies governed by private law and providing various financial services, including current and savings accounts and mortgages. Building societies offer more competitive rates than banks to their members (aka account holders) because they don't have shareholders and are not listed on the stock market, thereby investing their profit into the business.
Good to know:
As a member of a building society, you can vote in the elections for directors, attend annual operational meetings, and even nominate yourself to become a director.
The leading building societies (specialising in insurance, mortgage, and saving accounts) include:
Useful links:
Bank of England - Full list of banks and building societies in the UK
A trend that has been picking up in the UK is online bank accounts. This means they have no physical presence or proprietary ATMs. In recent years, 1 out of 10 people in England have switched to a digital-only bank. Some of the popular online banks include:
Good to know:
Most ATMs accept Visa, Mastercard, Amex, and Maestro.
Credit cards in the UK
Getting a debit or credit card in the UK depends on your needs and financial activities. Many people choose to have both cards. However, due to their nature (the bank is lending you money), credit cards are more challenging to obtain, and the requirements for banks to issue credit cards are much stricter. To be considered for a credit card, the bank will run a credit check on you to decide whether they will give you a limit, how much it will be, and the interest you will have to pay each month.
If it's your first credit card, you most likely won't have a credit record, meaning that you are a high-risk borrower for the bank since the bank has no evidence to prove otherwise. High-risk borrowers are not exempt from credit cards by default. However, the bank will only issue a credit card with minimal credit. As a non-UK national, a way to build up a credit record is by receiving a regular income for several months from a well-recognised organisation that is also your work visa's sponsor.
Tip:
Always use your credit card with your credit rating in mind. The better your credit record is, the easier it is to borrow money for a mortgage or car.
Credit builder card in the UK
First-time borrowers or people who want to improve their credit rating may start building or rebuilding their records with a credit builder card. These cards have low credit limits (about £250) and high interest rates. Having a credit builder card is your opportunity to prove you are a wise and responsible borrower who can be trusted with a credit card with higher credit limits.
How to choose a credit card in the UK
Every credit card has an interest rate, which is the amount you pay to the lender for offering you their lending services. Each customer is offered a different interest depending on their credit rating range. However, you can check the specific credit card's average by looking for the representative APR (the interest rate offered to at least 51% of customers). Some cards have a 0% introductory rate for the first few months. However, to take advantage of this, you must pay off your balance before this offer expires and the standard rate begins to apply.
Good to know:
If the lender hasn't offered you a higher credit limit after several months of you being a responsible borrower, you can reach out and ask for an increase. It's not guaranteed that they will agree, but it might be worth the effort.
Mobile payments in the UK
Mobile payments have become a convenient method of transaction in the UK, especially heightened during the COVID-19 pandemic. Approximately one-third of all payments in the country are now contactless, making it a highly favoured mode of payment.
If you haven't explored the benefits of mobile payments yet, now might be the time to consider it. The major mobile payment services in the UK are Apple Pay, Google Pay, and Samsung Pay, and they are widely supported by leading banks, such as HSBC, NatWest, and Barclays, making them easily accessible to most consumers. Setting up mobile payment is straightforward: for iPhone users, you need to use the Wallet app, while Android users can download Google Pay, and Samsung phone owners can access Samsung Pay from the Galaxy Store.
With the number of UK residents using smartphones for contactless payments expected to grow by nearly three million from 2022 to 2026, this trend shows no signs of slowing down.
Good to know:
The current limit for a single contactless card transaction is set at £100.
