Whilst doing some research recently on US checking accounts, I have been struck by how different they are to their UK counterparts. This article outlines some of the main differences and may be of use for Americans who are coming to work in the UK, or vice versa.
Monthly subscription charges:
Perhaps the most obvious difference is in relation to monthly subscription charges. These are the norm in the US but customers can often avoid them by meeting certain requirements such as maintaining a minimum balance or setting up a monthly direct deposit.
The UK, on the other hand, has a long history of free banking. Up until about a decade ago it was pretty much unheard of for any UK current accounts to contain a monthly subscription charge. Things, though, have gradually been changing with the introduction of packaged accounts. The idea behind packaged accounts is that you get a package of value added features and in return you pay a monthly membership fee.
Whilst these packaged accounts have grown in popularity, the majority of customers are still choosing the more standard free banking current accounts.
I’ve noticed that many US checking accounts don’t offer creditor interest, and this extends also to Student accounts. The accounts that do offer creditor interest seem usually to be the upmarket accounts aimed at premium segment customers.
In the UK, creditor interest is the norm rather than the exception on current accounts. However, it has to be said that the majority of current accounts only pay about 0.1 percent or 0.2 percent so it’s hardly worth getting too excited about. That said, there are one or two providers who offer current accounts that offer in the region of 3 percent to 4 percent. This is quite a recent trend and largely marks an attempt by these providers to aggressively steal business from their competitors.
Basic bank accounts:
In both the US and the UK, there are many people who don’t have a bank account. Part of the reason for this is that they have low credit scores and have been rejected when they’ve tried to apply for standard checking/current accounts.
In an attempt to reduce this financial exclusion, the UK banks introduced so-called basic bank accounts. These are current accounts that give the customer access to a cash card to withdraw their money from cash machine. However they don’t include either an overdraft facility or a debit card and the customer can’t go overdrawn on their account.
From looking at the checking accounts offered by the likes of Bank of America, Chase, WaMu, etc, I can’t see an equivalent in the US. With the current credit crunch crisis, however, I wonder whether the US banking industry may follow the UK’s lead, to minimise possible bad debt losses.
Website publication of interest rates and charges:
I’ve been quite surprised, on visiting various US banks’ websites, that I sometimes haven’t been able to find details of the creditor and debtor interest rates and charges that apply on their checking accounts.
The UK banking industry has become quite heavily regulated in recent years, and all UK bank websites should contain details of all the applicable rates and charges. That said, it can still be quite difficult sometimes to find the relevant web pages but they are there.
I think it’s important that people are fully aware of all the key account features before applying, and feel that I would be more likely to apply for an account where the bank has openly communicated these details to me as part of the online application screen flow.
In the US, I’ve seen accounts aimed at teenagers (e.g. 13 to 17 age group), which have to be opened as joint accounts with the second party being the teenager’s parent/guardian. Additionally, the adult can determine the daily limit that the teenager can withdraw from a cash machine with their card.
In the UK, the teenager would open a sole account and the limit that they could withdraw from a cash machine would be determined by the bank (and by how much money they have in their account) rather than by their parent.
I can see that the US approach might well be favoured by parents, whilst the UK approach would probably be favoured by the teenagers!
One area where US checking accounts are more advanced than UK current accounts, is the availability of text and/or e-mail account alerts. These are an excellent way of enabling people to better manage their finances by keeping them informed of their balance and when they’re getting near to their overdraft limit.
We’re just starting to see account alerts being introduced by one or two banks in the UK, so hopefully within the next 2 to 3 years they will be fairly common-place in the UK also.
In this article I’ve outlined some of the main differences that I’ve noticed between US checking accounts and UK current accounts. I’m aware that my knowledge of the US banking market is not as comprehensive as my knowledge of the UK market is, so there are probably other differences that I’ve missed. It would be interesting to see an article from a US banking expert, looking at this topic from the opposite perspective.
Finally, if you do find yourself moving from the US to the UK, or vice versa, the key recommendation that I would make is to do some research of your own before applying for an account. There can be significant differences between providers and it’s important to get an account that suits your circumstances.