If you’re new to the UK, getting to grips with the UK banking system can be a bit of a minefield – at least to begin with.
But if you’re planning to stay in the UK for a while, get a job and earn an income, it’s important to understand how the UK banking and financial system works, what type of bank account you need to open to receive your wages, etc…
When comparing your options, you’ll likely find that there’s a broader range of bank and savings accounts in the UK than you may be used to, and it’s not always obvious how they work or who they serve.
For instance, you might come across an instant saver, an easy access savings account and an instant access account and they can all mean the same thing.
This guide aims to explain the type of accounts you’ll come across in the UK, who offers them and what protections are in place.
And since there are a lot of folks coming here from the US, we’ll make sure to cover key differences between the US and UK banking systems.
Key types of banking institutions in the UK
Below is an outline of the types of banking institutions you’ll come across in the UK:
Traditional banks
There are two main types of traditional banking institutions in the UK – High Street Banks and Building Societies.
The key difference between the two is that building societies are owned and run by their members while banks are often floated on the stock market and are owned by shareholders. Banks therefore tend to be more driven by turning a profit.
However, banks typically offer more account types. Some building societies, for instance, don’t offer current accounts, only savings accounts.
The biggest high street banks in the UK include HSBC, Lloyds, NatWest and Barclays, along with Halifax and Santander.
Popular building societies include Nationwide, Coventry Building Society and Yorkshire Building Society, among others.
Challenger banks
Historically, forming a new bank in the UK with a full banking licence was extremely difficult, expensive, and time-consuming, which led to the UK banking market being dominated by the Big Four (Barclays, HSBC, Lloyds Banking Group, and NatWest Group), with virtually no competition.
In 2010, Metro Bank received their licence and became the first new high street bank in 100 years.
However, after the 2008 financial crash, UK financial regulators aimed to reduce the hold that the Big Four had on the market (estimated at 87% of all current accounts in 2017) and decided to open the market up to new banks in order to encourage more competition into the UK banking sector.
In recent years, challenger banks such as Monzo and Starling Bank, have become increasingly formidable competitors to traditional banks.
These newer banks are based online, and accounts are managed via their respective banking apps. They typically offer innovative budgeting features and real-time spending notifications to help you manage your account with ease. Further benefits can include competitive foreign exchange rates and fees, and higher savings rates.
Many of these challenger banks work in a similar way to US and UK neobanks. However, neobanks don’t hold a banking licence, while challenger banks do.
E-money institutions
In your search for a bank account, you’re likely to come across electronic money (e-money) institutions (EMI). Simply put, these are limited versions of banks that have been authorised to issue electronic money but can only provide payment services and hold customer funds. This means you won’t be able to take out credit products, such as loans or credit cards. Examples of e-money institutions include SuitsMe and Pockit.
E-money institutions operate online and can make it easy to manage your money in virtual wallets. You can send and receive funds just like you would with a traditional money account, have debit cards that can be used for payments or ATM withdrawals, etc… but EMIs do not typically have physical locations such as branches.
However, while e-money institutions may offer a more limited range of financial products, they also benefit from more flexible regulations compared to traditional banks. This means they can take advantage of new technologies that traditional banks are slow to incorporate, offering more modern procedures and more innovative account features. With Pockit, for instance, you can opt to get your wages advanced a day early. In some cases, e-money providers might market themselves as challenger banks, but they won’t have a banking licence. Instead, they have an e-money licence, and, like traditional banks in the UK, they are regulated by the Financial Conduct Authority (FCA). This means they must follow certain rules and guidance to protect customers.
As e-money institutions grow, some of them choose to get a full banking license and become full-fledged banks.
Tip: When looking at a financial firm’s website, the footer at the bottom of the page is where they usually fulfil their legal requirement to state what type of financial firm they are. If a financial firm is an e-money institution, this should be explicitly stated here.
Credit unions
UK credit unions offer an alternative to traditional banks. Like credit unions in the US, these are not-for-profit organisations that provide bank accounts, savings accounts and loans to their members, and many offer more attractive interest rates than traditional banks.
Credit unions are typically run by their members to benefit communities rather than make a profit. They are designed to help those who might have found it difficult to get a loan or bank account elsewhere.
To join a credit union, you must usually share a common bond with other members. This can include living in a certain area or working in the same place.
Credit unions are similar in many ways to building societies. Where building societies tend to specialise in savings and mortgages, credit unions tend to specialise in savings and personal loans.
However, while there are more than 4,000 credit unions in the US, there are only around 250 in the UK.
Banking Institutions in the UK – Key Differences
Feature | Traditional Banks | Challenger Banks | E-Money Institutions | Credit Unions |
Definition | Long-established banks offering a full range of financial services. | Digital-first or innovative banks competing with traditional ones. | Financial institutions issuing e-money and providing payment services. | Member-owned, cooperative institutions offering savings and loans. |
Licensing | Full banking license (PRA & FCA). | Full banking license (PRA & FCA). | Authorised as E-Money Institutions (FCA). | Registered with the FCA and PRA, under a cooperative framework. |
Products Authorized | Deposit accounts, loans, mortgages, credit cards, investments, and more. | Same as traditional banks. However, some challenger banks choose to focus on specific niches (e.g., savings, loans, business accounts). | Prepaid cards, digital wallets, money transfers, and payment services. | Savings accounts, personal loans, and community-focused financial products. |
Protection to Customer Funds | FSCS protection for deposits up to £85,000 per person per institution. | FSCS protection for deposits up to £85,000 per person per institution. | No FSCS protection; customer funds are safeguarded in segregated accounts. | FSCS protection for deposits up to £85,000. |
Where Funds Are Held | Held on the bank's balance sheet and used for lending/investments. | Held on the bank's balance sheet and used for lending/investments. | Held in segregated accounts at licensed banks. | Held within the credit union's reserves for lending to members. |
Branch Presence | Extensive physical branch networks. | Minimal or none; digital-first. | No branches; online or app-based. | Small, community-focused branches or offices. |
Technology | Legacy systems, increasingly digitalizing. | Modern, cloud-based infrastructure. | Fully digital, app-based platforms. | Often reliant on basic or legacy systems. |
Target Audience | Broad customer base, including individuals and businesses. | Tech-savvy users, younger demographics, and niche markets (e.g., SMEs). | Digital-first consumers seeking low-cost payment services. | Local communities and members with shared interests. |
Examples | Barclays, HSBC, Lloyds, NatWest. | Monzo, Starling Bank, Atom Bank. | PayPal, Wise, Revolut (initially). | London Mutual Credit Union, Plane Saver Credit Union. |
Notes:
- Some places use the term “challenger bank” more loosely in a way that includes some e-money institutions.
- Just because a company offers a current account or savings account, that does not necessarily mean that they are a bank. There are ways that an e-money institution can offer bank-like products.
Types of accounts in the UK
Below, we’ve taken a closer look at the most common types of accounts you’ll come across in UK banking.
Current accounts
Current accounts (sometimes just called “bank accounts”) work in a similar way to checking accounts in the US and are a place for you to receive your wages. You can also withdraw funds from your account with a debit card, transfer money to others and set up regular payments (direct debits or standing orders) to pay bills.
As with US checking accounts, UK current accounts often don’t pay interest. But many offer an overdraft, allowing you to borrow money if your balance falls below zero and a payment goes out. Interest is usually charged on the amount overdrawn.
You may also come across so-called ‘packaged accounts’. These are current accounts that offer additional perks such as travel insurance and mobile phone insurance, but you must pay a monthly fee in return.
Basic bank accounts, on the other hand, are stripped down versions of current accounts. They tend to offer fewer features, and you won’t be given an overdraft. That’s because they are designed for those who might not qualify for a standard current account due to a low income or poor credit history.
Savings accounts
The UK has a broader range of savings accounts compared to the US, so here’s an overview of what’s available:
Easy access or instant access savings accounts
Easy access and instant access savings accounts are effectively the same thing. You can pay money into your account and withdraw it again whenever you need to, penalty-free. Many of these accounts can be opened with just £1, but because of their flexibility they won’t necessarily pay the highest interest rates.
Regular savings accounts
Regular savings accounts, or regular savers, are designed to help you save regularly, and can be a great option if you’re looking to get into the savings habit.
Many regular savings accounts pay a high rate of interest, so you could say they are more like a high-yield savings account – but with stricter rules. For instance, you’ll need to pay in a set amount each month, say £10 to £300, and these accounts typically only last for 12 months.
Not all accounts permit withdrawals until the 12 months are up. At this point, your money may be moved to a less competitive savings account or transferred to your current account.
Fixed-rate savings accounts
Fixed-rate savings accounts or bonds are like a certificate of deposit in the US. In exchange for keeping your money locked away for a period of time, you earn a higher interest rate on your savings. This rate is generally fixed.
The most common term lengths are between one and five years, although some banks offer six-month fixed-rate bonds and others offer terms of up to seven years. You won’t be able to make withdrawals during this time (unless you pay a penalty), and you can’t usually add more money to your savings after the initial deposit.
Notice accounts
Another way to earn a higher interest rate is to choose a notice account. You can usually add funds whenever you want to, but you’ll need to give advanced notice before you can withdraw any of your cash.
Notice periods can range from 30 to 180 days, depending on the provider. You’ll usually be rewarded with a higher interest rate if you pick a longer notice period.
ISAs (Individual Savings Accounts)
An individual savings account (ISA) is a type of savings or investment account that allows you to build up savings or investments without being taxed on the income you earn from them. Not only that, but you don't have to pay any tax when you withdraw from an ISA account either.
There are a few different types of ISA accounts and various ISA rules that apply to them.
Every tax year, you have a maximum annual ISA allowance, which is currently £20,000, that can be split across all of your ISAs.
The annual allowance only refers to how much you can add every year, however, there is no limit to how much you can accumulate – and you will collect tax-free interest or investment returns on the entire amount.
For folks more familiar with the US banking system, the closest analogue is a Roth IRA. However, the Roth IRA is significantly more limited compared to the UK ISA. There are income limits, outside of which, you would not be eligible for a Roth IRA. In addition, the maximum annual contribution for a Roth IRA is around $7000/year, compared to the UK ISA's £20,000/year. Lastly, in order to withdraw from a Roth IRA without taxes or penalties, you must be at least 59.5 years old – whereas there are no such age limits for a UK Cash ISA account (some other types of ISA accounts have age limitations of one sort or another).
Business accounts
The main type of business account in the UK is a straightforward business current account. These work in the same way as a personal current account but are designed to handle business finances. This means they often offer business-specific features, such accounting software or invoicing tools. However, they might also charge higher account or transaction fees.
Some business bank accounts also enable you to carry out international transactions for lower fees or might allow you to hold multiple currencies in the one account.
Additionally, you can open a business savings account. Generally, these work in the same way as personal savings accounts, so you may be able to choose from easy access, notice and fixed-rate savings accounts.
A handful of providers also offer money market accounts for businesses, but they are less common here than in the US.
Joint accounts
Many providers in the UK let you open a joint current account or joint savings account. But unlike in the US, where any checking, savings, or money market account can be made joint by adding someone else as a joint owner on the account, not all accounts can be made joint in the UK.
In some cases, you’ll need to open a brand-new account as a joint account. In other cases, the provider will ask one of you to open the account and you can then add a second account holder.
Certain accounts, such as ISAs, cannot be held jointly.
Specialty accounts
Other accounts in the UK include:
Student accounts
As in the US, student accounts in the UK are specifically designed for those heading to university. One of the biggest perks of opening a student account is that you get an interest-free overdraft up to a set amount. There are usually no monthly account fees either.
Youth accounts (under-18)
You can apply for children’s accounts in the UK, just as you can in the US. You can open both current accounts and savings accounts, although your child must typically be at least 11 years old before they can hold a bank account.
Multi-currency accounts
It’s also possible to open a multi-currency account in the UK. These let you hold and transfer several currencies from the one account.
Ordinarily, if you send or receive money into a regular non-multi-currency account, the funds are subject to the currency exchange rate at that moment. However, exchange rates fluctuate, so they may be better one day and worse the next. By having a multi-currency account, you send or receive money in the native currency so that there is no exchange rate that you have to worry about. The only time you are subject to a currency exchange rate is when you are changing funds from one currency to another, which you can far more readily control in order to take advantage of times when the rate is more advantageous.
This can be particularly useful if you regularly send money to family or friends overseas. A multi-currency account can also be beneficial if you frequently travel abroad as you can typically spend and withdraw cash in various currencies on your debit card, fee-free.
Often these accounts are held with e-money institutions, although some larger international banks, such as HSBC, also provide this option.
E-money accounts
E-Money Institutions (EMI) and their accounts are not really a well-defined standalone product the way other types of institutions and accounts are, but are more of a category within which FinTech firms are allowed to explore within their regulated limits. Essentially, any non-bank financial account falls under the e-money institution (EMI) umbrella.
Unlike banks, e-money institutions are not authorised for certain products and facilities. This means that you won’t be offered any credit or overdraft facilities (although there are ways they can get around this to offer similar services), but you also won’t need to undergo a credit check to open an e-money account. This can make them a good option for those with a poor credit history or if you’re new to the UK.
The downside is that it’s not always easy to understand what type of account you’re opening, especially since there is no standardized language for EMI products in the UK and many EMIs use vague names. For example, EMIs are not legally allowed to call themselves a bank, so they might have a product they call a “Business Account”. But an EMI business account can be anything, such as a payment account (similar to a current account), multi-currency account, corporate debit card account, corporate credit card account, etc… So, you really need to look carefully to make sure you understand what it is they are offering.
This is not helped by the fact that, from what I’ve seen, many UK EMI businesses really only offer 1 or 2 products, but disguise it as 5-15 by referring to account features as “products”.
Many e-money accounts also come with different plan types and different fees, so you’ll need to select one carefully.
Accessing and managing accounts
Before you open an account in the UK, it’s important to understand how they can be managed.
Online and mobile banking
Thanks to the rise of challenger banks like Monzo and Starling, you can often manage your account completely online – either through online banking or a mobile banking app. This makes it easy and convenient to bank on the go.
Many of these banking apps offer nifty features such as budgeting tools and different savings pots, where you can set aside cash for different purposes. These tend to be a little more advanced than e-money apps, where you can often only check your account balance, get instant notifications and make payments.
However, both banks as well as e-money institutions may allow you to check your credit (FICO) score, depending on the provider. Some e-money apps also offer features to help you build your credit score – though this isn’t quite as advanced as it is in the US.
Branch vs. online-only services
Around 6,100 bank and building society branches in the UK have closed since January 2015 or are due to close by the end of 2025.
Although many consumers are now happy to bank online, it can prove problematic if you want to speak to someone in person rather than through an online chat or over the phone, or if you want to pay cash or cheques into your account.
If this applies to you, you may prefer to stick with a traditional high street bank, as long as there’s a branch near where you live or work. Alternatively, you can often pay in cash deposits and cheques at Post Office branches. Some online banks such as Starling and Monzo allow you to do this too.
Cash and ATMs
Unlike in the US, where most ATMs charge a fee, UK ATMs are generally free to use no matter who you bank with. There are around 50,000 cash machines in the UK, and you’ll often find them outside banks, supermarkets, Post Offices and petrol stations.
Most debit cards don’t charge cash withdrawal fees unless you are withdrawing cash in a foreign currency.
Fees and charges in UK banks
Bank fees
Some of the most common bank fees you’ll face in the UK include:
- Monthly account fees: These are more common on bank accounts that offer perks such as travel insurance, and work in the same way as US account maintenance fees.
- Overdraft charges: Unlike in the US, you can no longer be charged a fee to use an overdraft in the UK, but you will usually be charged interest and rates can be high.
- Same-day transfer fees: Many banks charge a fee for CHAPs payments, which is a same-day electronic transfer of funds that is often used to transfer large sums.
Foreign exchange and international transfers
Many UK banks will charge a fee if you wish to send money abroad. International transfer fees can be particularly costly with high street banks, often between £5 and £25 per transaction. You might pay a currency conversion fee on top too – typically a percentage of the amount you’re transferring.
It’s important to know that although you can look up the market rate for a given currency conversion, banks and EMIs determine individually what rate they actually charge. So, the conversion rate can be vastly different between one bank/EMI and another – so make sure to pay attention to this.
Using an e-money institution that specializes in money transfers such as Wise, PayPal, or Western Union can often be a cheaper option than using a bank. This can be particularly cost-effective if you need to send money abroad regularly.
E-money institution fees
Some e-money accounts charge a monthly account fee – this can vary depending on the plan you choose, but it also depends on what services the EMI specializes in.
Some of these accounts also operate on a pay-as-you-go basis, so for these, you’ll be charged each time you transfer money in or out of your account, for each direct debit you have on your account, and each time you make a cash withdrawal.
The pricing schemes can vary significantly, so comparison shopping is crucial.
Important: Don’t fall prey to “no fee” claims. You can easily lose more money on a company that does not charge a fee but has a significantly worse currency exchange rate compared to a company that charges a fee but has a much better exchange rate.
Understanding bank security and consumer protection
The type of consumer protection you’ll have depends on whether your provider has a UK banking licence.
FSCS (Financial Services Compensation Scheme)
If you open an account with a high street bank or an online bank with a full UK banking licence, you can benefit from FSCS protection. The Financial Services Compensation Scheme is the UK’s version of the US’s FDIC, but protection limits are smaller.
The FSCS protects 100% of the first £85,000 you have saved per banking institution. This means you’ll be covered for this amount if your bank goes bust. If you have more than £85,000 in one account or with one bank, you should transfer the surplus to another account with another bank.
E-money protections
E-money providers don’t offer FSCS protection. Instead, your money must be held in a segregated account which is protected by safeguarding requirements under the Electronic Money Regulations 2011.
This means your money is held separately from the firm’s own funds and if the e-money institution fails, the safeguarding account is supposed to have enough money to pay what you’re owed (note that there are caveats here).
FSCS protected banks (i.e. not an E-Money Institution) are legally obliged to pay back funds to eligible customers – this happens whether or not the bank itself has that money. The payout usually happens within seven days.
If an e-money institution fails, the customers’ claims are paid from the safeguarding account. The administrator can distribute cash held back to the customers, however, it could take longer for customers to recover their funds than if their money was in a bank. In addition, some costs are likely to be deducted by the administrator or liquidator of the insolvent company, so customers may not get all their money back. As an example, when the EMI Supercapital failed, the administrator deducted 10.48% of customers' e-money balances to cover the costs of administration, and it took several months for customers to get the remaining 89.52% of their funds back.
And if the EMI has breached its obligations, there is a risk there won’t be enough money in those accounts to repay customers even outside the administrator’s fees.
Fraud protection
UK consumers are entitled to maximum compensation of £85,000 if they are a victim of authorised push payment (APP) fraud. This is where you’re tricked into transferring money to a fraudster from your bank account.
Some UK debit and credit cards also offer zero liability protection, as they do in the US. This is a guarantee from the card issuer that you don’t have to pay charges made fraudulently without your consent.
Consumer rights and banking Ombudsman
If you wish to complain about your bank, you must first go through your provider’s complaints procedure. If this is unsuccessful, you can take your complaint to the Financial Ombudsman Service (FOS). This is similar to the Consumer Financial Protection Bureau in the US.
The FOS will look at the evidence provided by both sides and will write to you once it has made a decision.
How to open an account in the UK
Opening personal bank accounts
Traditionally, when opening a bank account in the UK, you needed to provide a form of ID, such as a passport or driving licence, and proof of address such as a recent utility bill. You’d usually need to take these documents down to your local bank branch to have them verified.
But thanks to the rise of online banking, many providers now let you set up your account quickly and easily online. You’ll still need to provide a form of ID, but this can usually be a photo of your passport or driving licence, as well as a selfie video. If you’re opening an account with a high street bank, you may still need to provide proof of address.
This is a similar process to that of the US.
Opening business bank accounts
Opening a business bank account is not much different to opening a personal account. Again, you’ll usually need to provide proof of ID and proof of address, but you will likely need to provide this for all company directors.
You may also be asked to provide your certificate of incorporation, partnership agreement or self-employed registration for your business.
Non-residents and expats
If you’ve recently arrived in the UK, you might be able to open an expat or international account with a high street bank, such as HSBC, NatWest, Barclays and Lloyds.
However, these accounts often come with strict criteria, such as paying in a set amount each month, so they won’t be right for everyone.
In some cases, you may be able to open a standard bank account with a high street bank, particularly if you have proof of your UK address. But as you won’t yet have a credit history here, you may only be offered a basic account.
If you don’t yet have proof of address, you may be better off looking at e-money accounts as these often don’t ask for it. Examples include Revolut, Monese, and SuitsMe. You won’t usually need to undergo a credit check either, so these accounts can be worth exploring if you don’t yet have a credit history in the UK.
Conclusion
There are a lot of similarities between the US and UK banking systems. However, the E-Money Institution model and ambiguous product names muddies the waters quite a bit and can make it difficult to understand what type of business and what type of account you are looking at.
When it comes to banks, although the types and names of bank and savings accounts are not necessarily the same, the process of opening and managing your account and the protections available are not unalike.
Before opening a bank account or savings account in the UK, it pays to shop around and compare your options carefully. If you have any friends or family members already living in the UK, it’s also worth asking what they recommend.
