This writeup covers accounts in the UK. It may well be different elsewhere.
A current account is equivalent to a checking account in the US: it is used for your everyday transactions. It almost always comes with a debit card/ATM card, and normally a cheque book too. Payments can also be made automatically by Direct Debit or standing order. Deposits can be made by cash or cheque at a branch or ATM, or electronically from another account, such as your employer's. Depending on your credit score, most will give you an agreed overdraft limit, with many having this interest-free up to a certain amount.
Unlike most checking accounts in the US, all UK current accounts pay interest, though often this is at a very poor rate. Recently, however, there has been more competition over rates, and you can often find accounts that pay better than many savings accounts. Apart from certain specialist ones, monthly fees are not payable on current accounts.
How do I open a current account?
First choose your account. Don't be swayed by silly gimmicks like free gifts. Look for things with real value like interest-free overdrafts and decent web-banking. Students can usually get very good deals, because banks are eager to catch customers when they're young. You are more likely to change your spouse than your bank. A good source of comparisons of interest rates is MoneyFacts. Their data is published in most sunday newspapers, or you can visit their web site.
Once you've chosen, you need to apply. The biggest issue here is proving who you are. This can be a pain. Anti-money laundering regulations introduced in 1994 mean that banks must take rigorous steps to confirm both the identity and address of anyone opening an account. You must supply separate documents to prove address and identity. There no specific rules stating what documents are needed, just that they must provide "adequate" proof, so the procedures in each bank vary slightly. Official, government-issued documents are preferred, for obvious reasons. I've included some examples of generally accepted documents. Remember: you may not use the same document as proof of both identity and address.
Proof of identity
Proof of address
Proof of address may also be made with an electoral roll check by the bank.
Many people just don't have these official documents, in which case special consideration is supposed to be made, allowing other forms of proof. In practice, I have seen friends arriving in the UK from abroad becoming stuck in a Catch-22 situation. On the one hand, they need a bank account in order for a credit check to be made to rent a house, but they can't get proof of address without permanant residence. The word on the street is that Barclays Bank is one of the more forgiving in its requirements. Because of the extra risks involved, the procedures for opening an internet or telephone account are stricter than most.
Once you've satisfied them that you are who you say you are, you can pay your cash in right away. Your debit/cheque guarantee card will be posted to you a few days later, often in a disguised envelope. The PIN that you need to use an ATM will arrive in another disguised letter. Alternatively, you can arrange to pick them up from your branch. This is good if you don't trust your housemates, or if you have an outdoor mail box.
Paying money into your account
The usual way to deposit money into a current account, is to arrange to have your salary or benefit credited automatically. This is done using a BACS transfer, which takes three days. To set this up, you need to give your employer your bank details, including your account number and sort code, and they can arrange it for you. If you have your salary or other regular payment credited this way, your bank will often give you special benefits such as an interest-free overdraft or a higher interest rate on deposits.
Most savings accounts also allow you to make BACS payments to a current account, so this is an easy way to move your money between accounts.
At a branch
With most accounts except those operated by phone or web, cash or cheques can be paid in at branches of your bank. Most accounts also allow you to deposit cheques by post, but obviously this takes even longer. Cash is available for you to use as soon as you have paid it in, but cheques usually take between three and five working days to clear. This is a scam, due in part to the antiquated systems used to clear cheques, but also greed on the part of the banks: they pocket the interest on the money for the time between it leaving one account and arriving in another. There is some modernisation, with some banks scrapping the absurd system where cheques had to be posted to a customer's home branch before they could be cleared. Barclays now offers instant cheque-clearing, and hopefully others will follow suit. Luckily, the use of cheques has declined dramatically in the past few years, so this should not be an issue for long.
Taking money out of your account
Of course, there's little point of having money if you can't spend it. Saving is boring: let's spend! Luckily, withdrawing money is even easier than depositing it.
At an ATM
The commonest way of getting cash is from an ATM (cash machine). These usually let you withdraw between £250 and £300 per day. You'll have been sent a card and PIN. A few years ago you had to worry about which machines you could use, and whether you'd be charged for it, but that is no longer the case. All ATMs in the UK are now member of the Link network, and almost all of them can be used for free, whether it is your bank or not. The exceptions are some ATMs in remote locations, and the mini-ATMs that are sometimes found in shops such as Spar. These have to clearly tell you if you will be charged. Most cards can also be used wordwide: look for the Maestro and Cirrus logos on the card to see if yours can.
Most current accounts come with some kind of debit card. The most widespread of these are Switch (operated by Mastercard) and Visa Delta. These allow you to spend the money in your account at any of the thousands of places that accept them. They are not credit cards, so you're not supposed spend money that you don't have. In most cases though, they don't check your account to see if you have enough money in there, so it is possible to do over your limit. Any charges to your card are taken from your account after about three days. The other type of card is the instant debit card. Switch's Solo card is the commonest one of these. These cards are usually given to teenagers or people with bad credit histories, as any money charged to them is taken from your account immediately and it's impossible for you to go over your limit.
Switch and Delta are accepted by virtually every place that accepts credit cards, as well as few that don't. This is because charges to the retailer are lower for debit cards than for credit cards. Solo is also widely accepted, but because the systems used to validate them are more sophisticated they are not as common as the other types of card.
Many places that accept debit cards will also give you cashback. This is a really convenient way to get cash. When you're buying something from somewhere that offers the service, which includes most supermarkets and many pubs and bars, they can give you up to £50 in cash which is then charged to your card.
There comes a time when you have to pay your bills. This can be made a lot less of a hassle by using Direct Debit. It is very easy to set up. For example: say you want your phone bill to be paid each month. The phone company will give you a Direct Debit mandate, which you fill in with your bank details and sign and return to them. They then have your permission to take the money to cover the bill out of your bank account each month until you cancel the agreement. This sounds dodgy: you're effectively giving permission to someone else to take money from your account, but in fact it's one of the safest ways to make payments. All payments by Direct debit are guaranteed by the banks, who will refund you in full if a false payment is ever made. because of this guarantee, banks are very picky about which companies can make Direct Debits, so you can usually be confident that they are bona fide operators. You can cancel a Direct Debit at any time by notifying your bank.
Just as you can recieve payments into your account with BACS, you can usually make them from your account too. These take around three days and can be made to almost any account. You just need to know the account number and sort code of the recieving account. Similar to BACS payments are CHAPS. These are processed instantly, but as they cost around £25 to process, they are usually only used for things such as car purchases or house deposits.
Similar to a Direct Debit, but controlled by you, is a standing order. This is an arrangement to pay a specified amount at regular intervals into another account. Payments are made by BACS, and most accounts will accept standing order payments. It's useful for things like rent payments, where the landlord is unlikely to have a Direct Debit facility available.
The other realtively common method of payment is the cheque. Some current accounts no longer come with cheque books, and their use is falling out of favour, particularly among younger people. I for one haven't used a cheque in years. There are still good for sending money in the post, or for paying in the rare places that don't accept debit cards.
To write a cheque, fill the name of the person or company that you are paying it to on the top line. On the lines below that, write the number of pounds that you are paying in words, with any pence in numerals. If there are no pence, write the word "only" instead. This is to stop the cheque being altered. In the box on the right, fill in the amount again, in numerals. Fill in the date, and sign in the bottom right hand corner, under your name. ASCII art time:
| Everything2 Bank Plc. 11-22-33 |
| 24th August 2002 |
| | | |
| Pay ACME MOUSETRAPS LTD._|______|______|------------------ |
| FIVE HUNDRED AND SIXTY EIGHT POUNDS 25p|£ 568 ========= 25||
| _________________________|______|______ ------------------ |
| ONLY | | Mr. Ascorbic |
| _________________________|______|__| |
| | | ascorbic |
| 0000001 11-22-33 12345678 |
The counterfoil (the bit left in the chequebook when you tear off a cheque) is for your records. Fill it in with the amount, the payee and the date, and maybe a note so you remember. You used to be able to sign the back of a cheque and transfer it to someone else. This was bad for security, so virtually all cheques now come pre-printed with Account Payee across them. This means that they can't be transferred to anyone else, and they have to be paid into the bank account of the payee, rather than being cashed on the spot.
Managing your account
With all of these different ways of moving money in and out of your account, you need a way of managing it. Usually the easiest way to do this is on the web. Pretty much all banks have some kind of web presence that lets you set up and cancel standing orders, transer money, view statements and so on. Many of the best value accounts are those that are managed only on the web.
Most banks also have a phone banking service. These are either automated systems ("press 1 to hear your statement"), or ones with real humans. Some banks offer the choice of either. These are useful and generally quick and easy to use.
In most cases, there is always the branch. Many banks have abandoned the concept of a home branch, so you can go into any branch of your bank and make changes to your account.
Some banks allow you to access your account with a WAP phone, but as with most WAP sites, these are slow and fiddly to use. Simpler are the SMS alerts that some accounts offer, letting you know if you're approaching your limit, for example, or if a payment date is approaching.
Overdrafts and charges
If there is money in your account, you should never need to pay any charges. In fact you should recieve interest. Payments by debit card, BACS, cheque, Direct Debit and standing orders are all free. Rates for agreed overdrafts vary a lot between banks, but are usually similar to credit card rates. The real charges start to be made if you go over your limit. you will get hit with a over-limit charge: often as much as £20, as well as paying huge interest rates on the extra balance. They may start to refuse Direct Debit payments and bounce cheques, which will have the added pain of probably causing a charge by the company you'd tried to pay them to. The bank may even try and charge you for sending you a letter telling you of these charges. This is how they make so much money off you. Beware!
My experiences of using banks, and helping my friends from abroad to open them