If you have never had your own bank account before there are few things you should know before jumping in to the finance sector head first. Opening your first bank account is a big step and forms the basis of your credit history so you need to ensure you do everything right.

What will you use your first bank account for?

You need to ask yourself why you need a bank account and what you will use it for. Perhaps you have just started your first major job and you need somewhere for your wages to be paid, or you are looking to pay your bills via direct debit. There are numerous banks and accounts so finding the best UK bank account for you will depend on your needs.

Choose a bank

The British banking sector is dominated by the ‘big four’ banks: Lloyds, RBS, Barclays and HSBC but these do not necessarily provide the best UK bank accounts. There are some smaller high street lenders that you might find more appropriate for your needs, such as the relatively new Metro Bank.

When searching for your first bank account it is essential that you compare current accounts and make an informed decision, rather than plucking one at random. Here are a few things to consider when opening your first bank account:

• Do you need to visit a branch or do you only need internet banking?
• Are there any offers available that you are eligible for e.g. student?
• Who do your family bank with and why?

Choosing an account

There are two main ways to choose your first bank account, you could first choose a bank and then pick an account from their product range, or you could compare current accounts across the board and pick the best one suited to you.

Standard Features

For your first bank account you will want access to a cash card which will allow you to make ATM withdrawals, but nowadays a debit card will be more appropriate as this also allows you to make payments in store and online. Some bank accounts come with a cheque book but, as their popularity decreases, this is becoming less common.

Credit Facilities

You might be interested in the credit facilities available to you, such as an overdraft. If you have no credit history, it is unlikely that these facilities will be offered to you until you have proven yourself as a reliable lender. For your first bank account, it is probably best not to concentrate on this, and simply get used to using a current account on a regular basis.

Royalties/Packaged Accounts

When choosing your first bank account take a look at any fees attached to the account as some accounts do have a monthly charge, you will usually be offered extra goodies such as free cinema tickets. If this is something you are interested in make sure that you weigh up the cost of the account to the benefits you receive.

Opening an account

When you open your first bank account you will need identification to prove that you are a genuine person. The documents required will be similar wherever you decide to open an account but double check the bank’s requirements. You should expect to have to provide original copies of a few of the following:

• a current signed Passport
• UK photocard Driving Licence
• student identification (if opening a student account)
• utility bill
• Council Tax bill
• Birth Certificate
• other photo or address identification

The bank may you require to visit a branch to produce the originals of these documents, or in some cases send them via recorded delivery in the post. All original documents will be returned to you as soon as possible.

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If you’re dissatisfied with your bank account, then in most cases your best bet is to compare bank accounts and switch banks. Some of the signs you should switch are poor customer service, low interest rates (though they’re all pretty low right now), and poor overdraft terms. Keep in mind, however, that around 90% of today’s current accounts are held by five big banks: HSBC, Barclays, Santander, Lloyds TSB, and RBS.

Many people fear facing mountains of paperwork, should they decide to ditch their bank for a different one, but the banks themselves do most of the tedious work. Under the guidelines of the Financial Services Authority, banks and building societies have to make an account transfer within 10 working days, with the new bank taking on most of the work.

Once a date for the account transfer is agreed upon by your new bank and old bank, there should be no charge for the switch. You can find out more about your rights with switching bank accounts by going to fsa.gov.uk. If you’re always in credit, choose the bank with the best interest rate, but if you sometimes go into overdraft, choose the bank that gives you the best overdraft terms.

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Three-quarters of consumers have never considered switching their current account. That’s the bold claim made by Consumer Focus as new figures reveal that fewer and fewer bank accounts are paying any credit interest to their account holders.

Michelle Slade from a leading financial data firm says: “People are more likely to get divorced than switch their current account. Most people see it as too much hassle, but all the major providers offer a switching service where they transfer your regular payments for you.”

If you are planning to switch, why not consider packaged bank accounts? Increasingly popular with consumers, they offer a range of benefits. However, when you compare the best packaged current accounts, make sure you take these three things into account.

1. Fees

Most packaged current accounts charge a monthly fee. Defaqto, a financial data firm, has found that packaged accounts charge an average fee of £14.92 a month.

You can easily end up paying over £200 a year in account fees, so make sure you will get your money’s worth.

2. Credit interest

Defaqto also found that 57.4 per cent of current accounts no longer pay credit interest, compared with 23.2 per cent three years ago. Main current accounts from large providers such as Barclays, HSBC, Nationwide and NatWest no longer pay any credit interest.

If you are planning to keep a credit balance in your current account, make sure that you compare bank accounts to find a provider who offers some credit interest.

3. Benefits

The benefits offered by the best packaged current accounts vary significantly from bank to bank. Many offer specific benefits such as travel insurance or mobile phone cover. Others offer lower overdraft charges or higher interest rates.

You can often also benefit from preferential deals on other bank products such as credit cards or loans. Make sure you compare bank accounts to find benefits which you are actually going to use.

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The UK government wants Brits to help the country spend its way out of the current recession, despite the recent 2.5% VAT increase and a still-gloomy unemployment picture. But the good news is that several of the big lenders have cut their rates on unsecured loans above £7,000. These lenders include HSBC, Barclays, Tesco Bank, Sainsbury’s, Santander and First Direct. Marks & Spencer Money introduced a new loan product at 7.5% APR. Currently, Sainsbury’s is offering the lowest rate: 7.4% APR for its existing Nectar Card customers.

The two downsides are:

1. The new cheap loans are reserved for existing customers only (except for Tesco Bank),

2. Lower rates are not available on smaller loans. This means anyone wanting to borrow smaller amounts, say £3,000, may see interest rates that approach 20% APR.

Average rates on £3,000 loans have gone up by just over 2 percentage points (to around 15.12%), while rates on £5,000 loans have gone up by 1.6 percentage points recently. This is one of the reasons credit cards can be an attractive option for smaller loans.

Cheap loans exist, but only for bigger amounts, and some experts believe that if consumer spending is to remain strong, then rate reductions need to occur on loans across the board.

The personal loan market has been hit hard by the recent credit crunch. Lenders are struggling to raise funds for lending, and unsecured loans are considered riskier. There has also been a fall in demand for personal loans as consumers turn their attention to paying off the debt they already have. In fact, personal loan advances by the major UK banks have dropped to around £1.1 billion per month, whereas five or six years ago those levels were more like £3 billion per month.

But even with lower numbers of personal loans being extended, loan apathy is costing borrowers significantly, particularly on loans of £5,000 or less. Research by Sainsbury’s Finance showed that more than half of borrowers simply went with their own bank when choosing a lender, with up to 39% neglecting to look elsewhere for a competitive rate quote. There are many deals out there and those who compare personal loans are the ones who will find them. The research found that it is the savvy (and internet-loving) 25 to 34 year olds who are most likely to shop around for quotes before signing for a loan.

As for what the Bank of England plans, most financial experts believe that they will raise rates only in the last quarter of 2011, and only slightly. With the increase in VAT, plus government budget cuts, most economists believe the Bank of England will leave rates alone for most of the year so as not to discourage any new economic growth.

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Are the new best credit cards in the UK the ones that don’t have to be swiped? Barclays, Royal Bank of Scotland, Lloyds, and Citibank think they might be, and they’re hoping more consumers will realise the benefits of these credit cards that work with only a quick wave in front of a scanner.

Powered by a radio frequency ID (RFID) chip, Visa’s PayWave credit cards are growing in popularity, with more than 8 million issued by mid-2010. Visa expects the number to top 12 million by the end of the year. While the majority of the distribution of contactless credit cards has been through replacement of existing credit cards, increasing merchant acceptance of the technology and increasing user interest may push the sector toward a “tipping point” by the end of 2010, leading to millions of contact-free transactions.

Merchant acceptance and consumer usage of contactless credit cards is mostly confined to the London area, and represents less than 3% of the total million-plus point of sale terminals installed. But since this type of card is best suited to places where purchase speed is critical, the technology doesn’t have to dominate to be successful. Though a Datamonitor survey from June 2010 showed that only 3.5% of consumers have and use a contactless card, 37.5% of consumers state that they do not have one but are interested in acquiring one.

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You can now pay for goods costing up to £15 if you have a debit or credit card with contactless technology, an increase of £5 from the previous £10 limit.

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