1. Understand different types of Bank Accounts
Topic 4
Understand different types of Bank Accounts

2. Learning intentions At the end of this topic you will be able to:
List and compare the different types of bank account
Understand how bank accounts work
Understand the ways of accessing information about accounts
Understand special signing arrangements

3. Current account
A Current Account is the most common type of Bank Account and is suitable for everyday needs. It is the account into which your income will be paid and out of which your monthly bills will be paid.
Each Current Account has 2 numbers:
Sort Code – this is the 6 digit number which identifies the bank where your account is held.
Account Number – this is the 8 digit number that is unique to your own bank account

4. Current Account facilities
Bank Statements
Standing Orders
Direct Debits
Chequebook
Debit Card
Overdraft

5. Packaged accounts
These are special current accounts which offer extra benefits in return for a monthly fee. Benefits include:
Insurance – Travel, mobile phone etc
Protection against identity theft
Will writing
Music downloads
Access to VIP lounges at airports
Additional charges for this could amount to £300 per year

6. Activity 4a
Read pages 57 to 59 Complete task 4a - Page 60 in your class jotter.

7. Savings Accounts
Savings Accounts are used as a safe place to store money and unlike a Current Account is not used for everyday needs. As well as keeping your money safe you can earn interest on your money.
You can deposit or withdraw money by going into your bank
You can make regular payments by setting up standing orders.
Transfer money from one account to the other

8. Types of savings accounts
Instant Access – money can be withdrawn whenever you want it. Interest for these types of accounts is usually very low.
Notice Accounts – you must tell the bank in advance when you are going to be taking money out. Notice can vary between 7 days, a month, 3 months or even a year. The longer the notice period the better the interest rate. If you do take out money without giving the required notice you will be charged a fee.

9. Types of Savings accounts
Regular Savers Accounts – these types of accounts encourage you to put money into your savings account on a regular basis. Most people will set up a Standing Order to transfer money on a regular basis from their current account into their savings account.
Sometimes the interest rate is higher for regular savers. You can withdraw money whenever you need it but there may be restrictions on how many times and how much you can withdraw – for example, you may be restricted to 2 withdrawals per year.

10. Savings accounts
Other types of savings accounts provide a tax-free way of saving. For example:
Individual Savings Accounts (ISA’s)
Child Trust Fund
Junior ISA

11. Interest Rates
Banks and building societies use the money that people put into accounts to make loans to customers. They charge these customers interest for borrowing money. Banks pay some of this interest back to account holders to encourage them to keep money in their accounts.

12. AER - Annual equivalent rate
Some savings accounts pay interest yearly and some pay monthly. So, when different savings providers advertise their interest rates it makes it very difficult for people to compare them and see which one is best. By law, all savings providers must quote their interest rate as an Annual Equivalent Rate (AER). This means that the interest on all accounts, even those that pay monthly, is quoted as if interest were paid once a year, making it easier to compare one account with another.

13. Activity 4b and 4c
Read pages 59 to 63 Complete Activity 4b and 4c on page 64

14. loans
Loan accounts are an arrangement with the bank. The banks lends money for a period of time and the customer makes regular repayments to reduce the amount borrowed. There are 2 main types of loan:
Personal loans
Mortgages – these are usually secured against the property they are used to buy
The longer the loan period the higher the amount of interest which will have to be repaid.

15. Types of mortgage There are 2 main types of mortgage:
Repayment Mortgage – monthly repayment are made over the term of the mortgage until you have paid back the loan and the interest.
Interest only mortgage – only the interest is repaid over the term of the loan. You will still have to save into some sort of savings plan to pay back the capital

16. LOAN TO VALUE (LTV)
The lender will only lend a certain percentage of the properties value to begin with. This is called the Loan to Value rate. Jamie applies for a mortgage and the house that he wants to buy is valued at £300,000. The building society states that its LTV rate is 75%. So the maximum mortgage that Jamie can have is £225,000. If he wants to buy the house, he will have to find £75,000 from his savings, or from somewhere else.

17. Activity 4d
Read pages 63 to 65 Complete Activity 4d on page 66.

18. Special types of mortgage account
Offset Mortgages – this is a way of reducing the interest payable on a mortgage. A bank current account and savings account can be linked to the mortgage. This means the interest you gain on your savings is offset against the interest you pay on the mortgage. Current Account Mortgages – Instead of the mortgage being shown as a separate account, the mortgage is shown as though it were one very large bank overdraft on your current account. The maximum overdraft is calculated using income and LTV. The bank will then produce a schedule of how much the overdraft must reduce each month.

19. apr (annual percentage rate)
The APR of interest is calculated using a complicated formula which includes:
The interest rate
The term of the loan (how long you want the loan)
Any fees (ie administration fees etc)
The APR therefore represents the TRUE cost of the loan. The APR makes it easy for customers to compare different loans at a glance to see which is the cheapest.

20. Fixed apr
The APR on a personal loan is fixed, meaning that it does not change over the life of the loan. The bank or building society will show you a table such as that on Page 69 which will allow customers to work out their monthly repayments. Attempt Activity 4e

21. Variable APR
If the interest rate on your borrowing can change, the APR is said to be ‘variable’. Variable APR means that your interest payments can go up or down each month.

22. EAR – EQUIVALENT ANNUAL RATE
This rate is used when you are borrowing money in the form of an overdraft. It does not include any fees for going overdrawn instead it gives you an idea of what your borrowing would cost if you were overdrawn for a full year.

23. Paying money into a bank account
When money is paid into a bank account we say that the account has been “credited”. If you pay money into your bank account over the counter you will have to complete a Paying-in slip. Paying-in slips are available at the bank and you are also given a book of paying-in slips when you open a current account.

24. Paying money into a current account
Write down other ways in which money can be paid into a current account. Read pages 72 and 73 to see what each of the items on the paying-in slip mean.

25. How to take money out of a current account
Over the counter
Sanding Order or Bank Transfer
ATM Automated Teller Machine
Cash Cards and Debit Cards
Direct Debit
Cheque

26. Cash Cards and debit cards
Cash cards are given to people normally 18 and under – They can only withdraw what they have in their account
Debit Cards allow you to buy in shops, take cash, buy on-line (only if you have sufficient funds)

27. Balance enquiries
Bank customers will need to check the balance of their current accounts frequently as this will help them to plan and manage their money. The main methods of doing so are:
Bank statements – page 77
ATM balance enquiries – page 78
On-line banking – page 78
Telephone banking – page 78

28. Special signing arrangements
When you open a current account, the bank will ask you for a specimen of your signature. This specimen will be compared with any other items that you sign at a later date to ensure that it is the account holder who is giving the instructions. If it is a Joint Account all the parties have to provide evidence of who they are as well as each person providing a specimen signature.

29. Activity 4f and 4g
Read pages 77 to 81
Answer Activity 4f and 4g

30. Joint accounts continued
The Joint Account Mandate is an instruction given to the bank. To open a joint account all the parties must sign a mandate, which gives the bank clear instructions about the number of people who can sign.
“Joint and Several Liability” is a legal way of saying that all parties are liable for the whole debt on a joint account even if they did not agree to it. This is include in every Joint Account Mandate.

31. Power of attorney
Sometimes, a person may not be able to look after their own affairs themselves and will appoint an attorney to have control over their finances. An attorney can only be appointed by someone who has full mental capacity at the time the forms are signed.
There are 2 types of Power of Attorney:
For a fixed period of time
Lasting power of attorney

32. today
Read over the Topic 4 notes again Answer the review questions.