Today we are going to discuss you’re getting a United Kingdom bank account.  As you will see later in this piece, there are a number of banks in which you can open an account in your home country prior to moving to London, this is the best form of action to take and is the most pro-active in getting ready prior to your move, but for many time or circumstance may not allow you to get to one of the world wide banks, so we will walk you through opening a banking account.  To start with, back home you probably knew and referred to your “checking account” as the account you both wrote checks on, and use with your debit card.  In England, these accounts are known as a “current account.”

Before we get too deep into our topic, let’s mention the three largest banks you could possibly have access to now in your current country in which to open an account you can use in England.  Barclay’s, HSBC, and Santander are the largest three, but one could check out Morgan Stanley Chase, or a similar sized institution.

Which banks should I choose from?

Another large difference in your banking in the U.K. is that not all accounts are held with institutional banking lenders and traditional banks that report to their shareholders.  There are “building societies” that function similar to credit unions in America.  They are subject to just their members and their individual voting rights and member status in their mutual institutions.

Some larger banks and building societies in the UK include:

All of the banks will have benefits and drawbacks as to what interest you are paid in your accounts, the bank or building societies fees, loan policies and mortgage rates.  One large factor of consideration should be any fees for online banking and the overdraft protection that each supplies, what those limit’s are and the costs associated with using overdraft protection should your account ever require its use.

Another difference in banking in the U.K.

One of the other small differences in having a current account in England is that you write checks out of your “chequebook”, just one of the many spelling differences in the U.K. from the U.S., Canada, or Australia.  Other options on most current accounts allow for direct deposit, which most all people in the U.K. take advantage of.  So it’s likely that you will need to have established a U.K. bank account in order to get your paycheck.

Another normal function of your current account is for direct debits on pre-selected dates, or the use of “standing orders.” Standing orders are an agreement with your bank or lender to disperse funds from your account in a predetermined amount on a predetermined date.  This is slightly different from a direct debit which gives the person or business an instrument with which they can deduct from your account, a standing order is an agreement with your bank, not the payer.

If your account is short funds in which to cover either a standing order or a direct debit (for use on utilities and internet, etc.) the bank will pay on your behalf in the amount of your predetermined overdraft protection.  Many are £500, and fees range from a percentage of interest on the amount used, to a set standard fee. No matter what institution you select you will want to know the businesses policy and fees associated with this important account feature.

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Documents needed to open an account in the U.K.

Irrespective if you select a banking institution or a building society there are documentation requirements that the U.K. has to provide adequate proof of identity and proof of address.  Unfortunately, you cannot satisfy both conditions with just one document, you must have two forms one for your identity, such as your passport (photo identification) and a lease or rental agreement for your proof of address.  If you are staying with standard documentation, even a phone or utility bill will suffice as your proof of address, so long as it is less than 90 days old.  The problem can come if you don’t have a lease or letting yet and you are without then utility bills so you have to get creative in supplying address proof identification.

So if you are one of the many individuals who are trying to open an account upon arrival and before you have a permanent situation to live in you may need to borrow the address of a friend in order to provide the address proof you need.  If you are using a friend’s address you will need to apply for a simple credit card, or even a pre-paid credit card if credit is an issue. Once you receive the card and the statement it will suffice for the lending institution as your formal proof of address.

Short of that you can use a bank account from home so long as you go online and change your address with your bank.  Once that original account shows your new U.K. address it will suffice as proof, provided you print out a statement with the current U.K. address showing and give it to your banker.  Or lastly, if you don’t have that ability you can use a statement of acceptance from your employer.  Show the address that you have in the U.K. on your employment documentation in order to provide third party verification of your proof of address.  Everyone who is employed in the U.K. receives a statement of “HMRC P2 ‘PAYE Coding Notice” which shows your classification for tax purposes, all banks and building societies will accept this documentation as proof of address.

Another challenge for expats looking to open a bank account

While the chances are likely that you didn’t have a credit report pulled when you opened an account in your home country, in England they will pull a current credit report prior to opening a current account.  While you may not have credit accounts from England, or even Europe when you arrive, if you have had significant credit with creditors elsewhere in the world then you’re going to need a good credit score (above a 600 FICO score) in order to show creditworthiness.   Institutions and building societies realize this challenge and they use world wide credit reporting agencies like TRW, Equifax, and Experian.  If you don’t know what a credit score is check out this explanation.

This is also another advantage to opening an account with one of the world wide banks that is readily used to dealing with expats in all locations, London in particular; these banks again are Barclays, HSBC, and Santander.  The only time this could be an issue is if there is a student situation and the individual is young enough to not have established any formal credit previously.

Still, this won’t eliminate the possibility of opening at least your basic base account.  A basic account can still receive your employment checks in direct deposit, obtain a debit card for use at ATM’s and the ability to write cheques and set up direct debits or standing orders.

39045989_lWhat about interest rates?

It really wasn’t all that long ago that banks didn’t offer interest on current accounts.  But the rates for current accounts has steadily risen over the last few years and its become a real attracting feature of banks to advertise with.   The same goes for building accounts, almost all pay interest and some have fee monthly accounts or waive standard monthly account charges for those that can cover a pre-set deposit amount in their accounts, generally £1,500-£2,500.

So how do the banks make money if they are paying you interest?  Well as always is the case with money institutions, lending money and charging interest higher than interest rates paid out to depositors is how they make the bulk of their income.  But now more and more banks are charging any number of fees associated with bank accounts. Whether that’s a monthly service fee or charges for overdraft or bounced checks, these fees are steadily growing.

How do I decide which bank to open my account with?

With all the types of accounts that are available to depositors nowadays there are various features that accompany accounts so it can be difficult to know what type of account to select.  Obviously, some features are more important to individuals than others and it really is a matter of personal preference, but there are a few areas that you should look into before selecting an account type and lending institution.  One of the key features is the amount of fees they charge on accounts for various reasons. Overdraft is generally the big one that has accompanying charges to look out for. Some banks charge up to 30% interest plus a fee for using your overdraft protection.  Accounts at Santander are covered up to £500 in overdraft protection with a charge of £1/day for each day you use the overdraft.

Certainly the amount of interest and any balance requirements for deposit accounts is a differentiating figure to obtain.  Many banks even offer free deposit amounts or account fee waivers when first opening your account.  It may not be much, but every little bit helps.  Lastly, where your bank or building society has branches if you prefer to bank in person, and if they have up to date technology for banking online is a concern for most people.  One thing is for sure, once you’ve set up your bank account in the U.K. you are quickly on your way to becoming a local in London.