Setting up your first bank account (not counting any that were set up for you in trust by parents/guardians/grandparents) is a milestone in your life. One of the first steps of independence and adulthood.
However, it can also be confusing and understandably you may be overwhelmed by the amount of financial jargon that banks often throw at you. So I’ve created this guide on the process of setting up your first bank account.
Choosing a bank
The first step should be to choose which bank you wish to set up your account. Your family may already have set up a bank account for you (lucky you) so you may wish to stay with this bank provided you are happy with them. However, you may wish to choose another bank which is perfectly fine. Some may say this a good idea as it avoids “putting all your eggs in one basket”.
Check what banks have a branch in your local area. You may prefer to have a branch nearby allowing you to visit should you need to. However, if you are comfortable doing all of your banking online or using a mobile app you can consider banks that do not have a local branch.
Another aspect to consider is how easy it is to ‘bank’ with a certain bank. Do they offer online banking or a mobile app? If so how easy are they to use? Is there customer support available 24/7?
You should also consider customer service. Ask for recommendations from family and friends or check out online reviews. Are the staff helpful and friendly? Is good financial advice offered?
Some banks offer an incentive to encourage you to set up an account with them. Notable examples include a free gift, discounts on travel, vouchers or even cash. Although this is a nice gesture it should not be the sole reason you select a particular bank.
Most banks also offer incentives for you to encourage friends/family to choose them so it is always worthwhile considering this. Don’t worry the majority of these incentives are usually offered to both the existing customer and the new customer so it won’t just be the person who referred you who benefits. Win-win, I say!
Types of Account
Current Account: These are used for general day to day banking such as paying bills or shopping. It is usually the account that people have their wages paid into. Most banks will offer a version for under 18s, students and graduates.
Savings Account: As the name suggests this account is used for saving money. Banks will pay interest on the savings. There is no limit on the number of deposits however there may be some restrictions on how money can be withdrawn.
Cash ISA: A Cash ISA is a type of savings account that pays tax-free interest on savings. However, you can only open one ISA per year and there is a limit to the amount of money you can deposit each year (currently £20,000). Anyone aged over 16 can open a Cash ISA and you can withdraw money anytime.
Setting up the account
The majority of bank accounts can be set up online without the need to visit an actual branch (although you may need to provide proof of identity). This very easy to do and there are guidance and support available on their website or over the phone.
However, most banks will have personal banking advisors that you discuss your options with. If you have access to a branch, this is something you should really consider especially if it is your first experience setting up a bank account. They will be able to explain the different types of bank account available to you, how to manage your account and will even set up the account for you there and then.
Once your account is set up you will receive a bank card which will allow you to make payments or use an ATM machine. This will either be a debit card or a cash card. A debit card allows you to make payments i.e in shops or online and withdraw cash using an ATM machine. A cash card only allows you to withdraw cash and cannot be used to make payments. These are usually only used for accounts that are not used for day to day banking such as a savings account.
These cards will have a PIN number that you will be asked to input when making payments or at an ATM machine. You must keep this number safe and only you should know it. No one will ever ask you for your PIN number including the bank or even the police.
Interest Rates
In a nutshell, interest is a sum of money paid into your account by the bank. This is because technically you are lending your money to the bank therefore interest is the amount of money paid to you by the bank in return for you lending them your money.
Your interest rate may change depending on the bank and the type of account you have. Check out each bank to see what interest rates are offered. Ideally, you should choose a bank account that offers a good interest rate.
Let’s consider a very basic example. Imagine you have £100 in your bank account with an interest rate of 2% annually. At the end of the year, you will have £102.
Managing your account
Almost every bank has a secure website or mobile app that allows you to manage your account directly from your phone or laptop. This allows you to view your balance, transfer money, make payments and manage any direct debits or standing orders. A direct debit is when you give a company permission to take a specified amount of money out of your account on a set date i.e to pay a bill. A standing order is when you instruct the bank to pay a specific amount into another bank account at a set time.
You can also set up alerts on your account that will notify by you by text, email or even phone in certain situations for example if a large amount of money has been withdrawn.
