Life Skills: Finance - Banking

• Retail is the type of bank you will be most familiar with, these banks focus on giving financial services to the general public or consumers. They offer a variety of services but mainly deal in checking accounts, loans, credit cards and tend to have numerous branches around the country. These banks are owned by investors in the company that owns the bank, be that the bank themselves or a larger banking group as such their business model often is designed to benefit investors.
• Commercial banks - as the name implies these banks focus more on business customers because most businesses have their own separate bank accounts. These banks provide many of the same services that retail banks provide just on a larger scale and most business bank account come with a monthly fee to stay open. Where commercial banks differ from retail banks is that they also provide more complex services such as managing payments to customers or lines of credit for the business.
• Investment banks mainly focus on business accounts that will be on the financial market either selling shares or creating capital for the business. These banks often also provide support and advice on mergers or acquisitions of other companies.
• Central banks are a bit of a funny subject as members of the public can not open an account with them. A central bank's main role is to be the bank of the countries government in this sense the central bank for the government to hold an account with and also set the guidelines for other banks. they are also reasonable for that country's currency and how well it is doing.
• Credit unions operate similar to retail banks but the main difference is that they are a nonprofit organisation. This means that it is the banks customers who are the owner of the bank, they tend to operate in a local area and offer loans to people and small business in that area, their main focus is to provide the same services as a retail bank while using any profits they accumulate to support the local community through loans or other means.
• Mutual banks are very similar to credit unions that have become so large that they can work out of their local area but still work in the benefit of the account holders instead of investors. The significant difference lies in the legal details mutual banks have to undergo to become formally recognised as a bank. An example of this type of bank is a building society and the names of these societs often tell where they originated from for instance Yorkshire Building Society or Skipton Building Societ. It should be noted that credit unions and building societies often give better rates of interest in savings accounts than a normal retail bank.
• Savings and loans banks - now this does sound more like a service banks provide but these are separate types of banks as well but since their main focuses are on providing services that are covered extensively by other banks we won't go into too much detail on these types of banks.

It is important to mention that in the UK many banks fall under larger banking groups for example Bank of Scotland is a part of the Lloyds Banking Group. As such most banks offer nearly all financial services to customers, but the banks themselves may be subject to T&C's set out by the larger banking group. This is also worth bearing in mind for people who wish to shop and do business with more ethical companies.

• Basic Current account - This is just a basic bank account that allows you to deposit money and withdraw money some current accounts, most current accounts come with telephone banking in-branch banking and mobile banking as standard with no extra charge. But these benefits will vary and depend on the bank you have the account with for instance an online bank will not have an in-branch service and the card may not be accepted in some businesses
• Joint current account - This account is identical to a current account with one key difference that in a joint account there are 2 account holders which means 2 people not only have access to the account but if any direct debits or bills are in a joint name this becomes a joint credit file.
• Savings account - Most savings accounts are identical in the sense that you can deposit money or withdraw money as you need to, the main difference between the accounts is in the interest rates and who you bank with. For instance if your savings account is with the same bank as your current account then you are more likely to be accepted for loans in the future from the bank if you save regularly with them. You also pay tax on the money you put into these accounts.
• Individual savings account (ISA) - these are a type of savings account but you get an allowance from the UK government on how much you can put into an account each year without having to pay tax on the money you save. The tax-free allowance for the year 2020 is £20,000. There are multiple types so you have an ISA savings account, Stocks and Shares account ISA, Innovative ISA, and finally a lifetime ISA, now the stocks and shares ISA is exactly what you would think it is, its an ISA account that you can buy stocks from and all of the profits go into that account. An Innovative Finance ISA (IFISA) allows you to make peer-to-peer (P2P) lending investments within a tax-free wrapper. This means that any interest earned within this wrapper will not be taxed and will not count towards your Personal Savings Allowance. More about ISA's here
• Lifetime instant savings account (LISA) - You will have noticed we mentioned a lifetime ISA in the last section but lifetime ISA's have a rather unique set of rules that don't apply to other ISA's which makes it worth mentioning them by themselves. A lifetime ISA is a savings account but it has a different tax-exempt limit from other ISA's - you can only deposit up to £4000 a year into an L-ISA. Moreover lifetime ISA's do not let you withdraw money whenever you want instead there are only 3 reasons that you can withdraw money from your account without paying a charge these are:
• To buy a house of a value under £250,000
• You are terminally ill
• you are over 60
• Withdrawing money for any other reason than listed above and you will have to pay a 20% charge of your withdrawal. There is an age restriction on who can open a Lifetime ISA so anyone between 18-40 can open an L-ISA.
• Student Accounts are similar to a standard current account, but may come with handy features for people who are in education. These could include an interest-free overdraft, a railcard, gift vouchers, or other benefits. Once you have finished education, this account is likely to change to a regular current account
• Packaged current account - Packaged accounts can be handy. A Packaged Bank Account is a current account that usually comes with extra benefits, in exchange for a monthly fee. For example, the Cooperative Bank has the "Everyday Extra Current Account" which gives you all the features available with their standard Current Account, but also includes UK and European Breakdown cover, mobile phone insurance, and worldwide travel insurance for a £15 monthly fee. As with all types of insurance, limitations and exclusions apply. You must read the policy documents before applying. Some package account even comes with home contents insurance so check if you already have a package account to see what you have cover for and any extras you may have that you did not know about. Now packaged accounts are basically like an upgrade onto your standard account and they can be put onto a joint account. So if you have a joint account with your partner you can make that a packaged account and then both of you have the same cover for break downs, travel insurance, and mobile phone insurance, now most package accounts come in at under £20 so if you and your partner both pay for mobile phone insurance separately chances are it would be cheaper to just take out a package account and receive the phone insurance through that with some handy extras.
• Children's bank account -  A children’s bank account is usually a current account designed to help your child get used to managing money. They are often available for children aged between 11 and 18 and usually come with restrictions to help control the account and prevent overspending. A parent or a guardian will usually need to open the account on their child’s behalf if the child is younger than 16. It is worth noting that a children's bank account can not have an overdraft on it even if the person is age 18 instead they will need to open a current account to have access to an overdraft.