How banking works in the UK

A summary of how to manage your money while living in the UK

Holding your money

There are a variety of different types of bank account that you can hold your money in when you move to the UK. These range from basic and current accounts for your everyday needs, fee-paying accounts that offer additional benefits, and savings accounts to grow your money. Some UK bank accounts do not charge a monthly fee, unlike banks in many other countries. Your employer will require you to set up a bank account to pay your salary into and you can also arrange for any benefits and state pension to be paid directly into it too.

Basic accounts enable you to pay in cheques

Cheques
A paper written order that tells a bank to pay out an amount of money from your account into someone else's.

or cash, free of charge. You don't get a chequebook

Chequebook
A book containing cheques.

with a basic account and there is no overdraft

Overdraft
An overdraft happens when the balance of a bank account falls below zero. In this situation the account is said to be overdrawn. Interest will usually be charged on the amount of the overdraft, and if the overdraft has not been agreed in advance with the bank you may have to pay charges.

facility, meaning you cannot take out more money than you have in the account.
It can sometimes be difficult to obtain a UK proof of address when you first arrive. If you need to open an account without a UK proof of address consider HSBC's Basic Bank Account.

Current accounts usually offer a chequebook, a debit card that you can use to pay for items and withdraw money from an ATM

ATM
ATM stands for automated teller machine – a machine that dispenses cash.

, as well as the opportunity to set up direct debits

Direct debits
A direct debit is an agreement between you and the recipient allowing them to take money from your account. They are usually used to make variable or fixed-price payments between an individual and a company, for example paying utility bills.

and standing orders

Standing orders
A standing order is set up by you to send a set amount on a specific day and is often used to pay fixed-price bills between individuals, such as rent.

and accept transfers. Some banks may allow you to set up a pre-arranged overdraft facility, but charges normally apply. Read about HSBC's current accounts. Opening an HSBC account, and agreeing an overdraft with us, is subject to our lending criteria and your status.

Have a look at our International Benefits table for a breakdown of international features and benefits that HSBC bank accounts offer.

Some UK bank accounts do not charge a monthly fee, unlike banks in many other countries

Getting cash

You can withdraw your money from nearly 60,000 UK ATMs, also known as cashpoints or holes in the wall. Most cashpoints in banks are free to use. Some private cash dispensers charge you to make a withdrawal but this will be clearly signposted. You can also ask for cashback

Cashback
When you pay for goods in a store using your debit card, you may be asked if you would like cashback. This simply means getting some cash given to you from the till – the amount you receive will be added to the total of your card payment.

when you pay for goods by debit card in a shop.

Shopping

You can pay for goods with cash, your credit card

Credit card
A credit card allows you to purchase goods or services and delay the payment. You will receive a bill each month and be required to pay at least the minimum amount off the balance. You will usually be charged interest on any outstanding balance each month.

or debit card using chip and PIN

Chip and PIN
Almost all UK retailers now use the chip and PIN system, which means that, instead of signing a paper receipt to verify a debit or credit card payment, you enter a four-digit Personal Identification Number (PIN).

or by cheque, although cheques are becoming less widely accepted.

Debit and credit cards look very similar but debit cards allow the holder to withdraw or transfer money electronically from their account when making a purchase, whereas credit cards may be used to withdraw money or buy products or services on credit

Credit
Credit means any type of arrangement that allows a person to get cash, goods or services and pay for them at a later date. Forms of credit include overdrafts, loans and credit cards.

. Unless you have an overdraft facility, debit cards only allow you to spend the money in your bank account, so they are good to avoid getting into debt. Be aware that outstanding balances on credit cards have to be paid back, with interest if you do not settle the monthly bill in full. A minimum spend sometimes applies to card transactions, particularly in smaller stores.

Managing your money

You can manage your money by going into a branch, online or over the telephone. You can also set up standing orders or direct debits, which allow you to make regular payments through your bank. Internet banking is becoming increasingly popular and is convenient to use. You can go online to transfer money between your accounts, set up BACS

Bankers' Automated Clearing Services
An electronic way to make payments to, or take payments from, UK bank accounts. Many salaries are paid by BACS directly into the employee's bank account.

or CHAPS

Clearing House Automated Payment System
An automated, same-day payment system for processing payments made within the UK. There is usually a charge of around £30.

payments and view your account activity. Normally, banks send paper statements summarising your transactions to your home address but give the option to turn these off in return for eStatements, which are quicker, safer and kinder to the environment.
You can transfer money from one UK financial institution to another through BACS, or CHAPS. There is normally a charge for CHAPS, as the money transfers on the same day.

If you need to transfer money to family back home or to one of your overseas accounts, there are various methods you can use. Depending on where it has to go, how quickly it is needed and how much you are willing to spend.

Borrowing

Loans

Loans
A sum of money borrowed, which has to be paid back with interest.

, overdrafts

Overdraft
An overdraft happens when the balance of a bank account falls below zero. In this situation the account is said to be overdrawn. Interest will usually be charged on the amount of the overdraft, and if the overdraft has not been agreed in advance with the bank you may have to pay charges.

and buying on credit are all methods of borrowing money. If you borrow money, you will normally have to pay interest on your debt. Rates of interest vary depending on the type of borrowing, the repayment period and the lender.

Types of loans include unsecured loans and secured loans that can be taken out against property, which normally require you to pay the money back in regular instalments. Overdrafts and credit cards can offer more flexible borrowing than loans because their repayment plans are often less rigid, but the interest rate is generally higher than with a personal loan. Buying on credit includes paying for goods or services by credit card, store card

Store card
Most major retailers in the UK offer a type of credit card called a store card, which you can only use in that particular shop or retail group. They often offer discounts but some can charge very high rates of interest.

, hire purchase

Hire purchase
If a buyer can't afford to pay the asked price for an item as a lump sum, but can afford to pay a percentage as a deposit, a hire-purchase contract allows them to hire the goods for a monthly rent. Once they've paid an amount that adds up to the original full price plus interest, they can then choose whether to buy the goods at a nominal price or return them to the owner.

and 'buy now pay later' credit agreements

Buy now pay later credit agreement
Some retailers allow you to take home an item but delay the start of your monthly payments (which will usually include interest) until a specified date in the future.

.

Before deciding to borrow money, you should consider if you will be able to repay it, bearing in mind you may have to pay interest on the debt. HSBC's budget calculator can help you check your income against outgoings to see what you would have left at the end of each month to repay the debt.

By using the International Banking Centre to open a UK account before you arrive, it may be possible to transfer your credit history so that you can continue your banking relationship with us. This means that banks will be able to run a credit check on you if you apply for credit.

Saving

To earn interest, you may wish to open a savings account. There is a wide range available and the main differences between them are how quickly you can access your money, the minimum amount required to keep the account open and the type and rate of interest paid. Read about HSBC's savings accounts.

You can make your money work harder in savings accounts, which can pay higher interest than current accounts. The rate of interest will vary depending on the bank, the type of account and how easily you can access your money.

No notice accounts

No notice accounts
A savings account from which you can withdraw money at any time without giving the bank or building society prior warning.

and instant access savings

Instant access savings
A savings account from which you can withdraw money at any time without giving the bank or building society prior warning.

accounts let you get hold of your cash whenever you need to. They provide greater flexibility than notice accounts and bonds, but the interest rates are often lower.

Saving your money in a notice account

Notice account
A savings account that requires you to give prior warning to a bank or building society if you want to withdraw money.

is a good way to prevent rash spending decisions. They offer better interest rates than instant access accounts.

Bonds

Bonds
A savings bond runs for a fixed period – usually one, three or five years. The rate of interest is set when you open the account. The longer the timescale, the better the rate of interest you will receive. If you cash a bond in early, you will usually lose interest.

or term accounts

Term accounts
A term account is a savings account that runs for a fixed period – usually one, three or five years. The rate of interest is set when you open the account. The longer the timescale, the better rate of interest you will receive. If you close the account early, you will usually lose interest.

offer an even better rate of interest but require you to lock your money away for longer – the longer the timescale, the higher the interest rate.

Regular savings accounts

Regular savings accounts
A savings account into which you pay a certain fixed amount each month.

require a deposit to be paid into the account each month. They offer higher rates of interest than a normal savings account but can limit how much you can put in on a monthly basis. Missed deposits can mean a drop in interest.

Banks and building societies usually deduct 20% income tax

Income tax
Income Tax is a tax on income. Not all income is taxable and you're only taxed on 'taxable income' above a certain level. Even then, there are other reliefs and allowances that can reduce your bill – and in some cases mean you've no tax to pay.

from the interest they pay on most savings accounts. But if you are a low earner, you may be able to have your interest paid gross

Gross
When interest is paid to a person without any tax having been deducted, it is said to be paid 'gross'.

, which means there will be no tax deducted from the interest you earn.

Once you've lived in the UK long enough to be classed as a resident, you can save tax free using an ISA

ISA
An ISA is an Individual Savings Account. Any adult living in the UK can have an ISA, which allows you to save a certain amount each tax year without paying any tax on the interest you earn.

. There are a variety of cash ISAs available, with different terms and notice periods, as well as stocks and shares ISAs. Many ISAs offer full, instant access, but there are limits on how much you
can invest each tax year. So, if you use your full allowance but then take money out, it cannot be paid back in.

Check if you qualify for advice

If you have £50,000 or more in savings and investments, you may be eligible for HSBC Premier Financial Advice. See the full eligibility criteria.