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How bank accounts work

About how bank accounts work

On this page you can find out about how bank accounts work, including things like payments into your account, direct debits, cash machine withdrawals, overdrafts and bank charges.

You can find the answers to questions such as:

For more information about banks and building societies, including getting a bank account and making a complaint, see Further help and information.

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Money going into your account

When should money reach your account

Payments into your account must be credited to your account on the day that they are received. The money must be available for you to use as soon as it is credited. This includes cash payments over the counter, but does not include cheques.

Cheques paid into sterling current accounts have a clearing cycle, often called '2-4-6'.

For more information about cheques, see Cheques.

Should you be charged for money coming into your account

Most banks or building societies will not charge you to receive payments. They must tell you if they do charge.

What information should you get about money going into your account

For both electronic and cash payments made into your account, your bank or building society will give you the following information:

  • details of the payer and any information sent with the payment
  • the date the payment was credited to your account
  • the amount of the payment. This should include the original currency value if it was paid in a currency other than sterling
  • any exchange rate applied or any charges or interest payable.

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Overpayments to your account

If money is credited to your account by mistake, the bank or building society is usually entitled to recover the money, as long as they do this within a reasonable time.

There may be some circumstances in which you're allowed to keep the money, for example, if you didn't realise the bank had made a mistake and you spent the money in good faith. For you to be able to keep the money under these circumstances, you would have had to have spent it in such a way that it would be unfair to ask you to pay it back.

If you think the bank or building society is being unfair in asking you to repay the money, you can complain to the Financial Ombudsman.

If you do have to repay the money, you could try to come to an arrangement with the bank to pay back the money in instalments without further interest being added. In practice, a bank or building society will normally agree to this.

If you don't pay back money you owe to the bank, you could, in some circumstances, be prosecuted for theft.

For more information about how to deal with people you owe money to, in England, Wales and Northern Ireland, see How to deal with your creditors and, in Scotland, see Help with debt.

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Money taken out of your account

Too much is taken out of your account

If an amount is debited from your account which is higher than you could reasonably have expected to pay under any circumstances, your bank or building society may have to refund the full amount of the payment. For example, the amount could have been deducted through a direct debit, or a credit card payment for a hotel room or car hire.

When deciding whether or not the debit was reasonable, the bank or building society will take into account your previous spending pattern and what type of account you have with them.

The bank doesn't have to refund the payment if you have agreed to the amount of the payment beforehand or you were given details of the payment by the bank or building society at least four weeks before the payment was deducted.

If you want to ask for a refund of the payment, you can do this within eight weeks of the deduction. Your bank or building society may ask for additional information they think they need to help them decide whether to refund the payment.

Once you've asked for a refund, your bank or building society has ten working days to either:

  • refund the payment, or
  • give you a reason why they are not going to refund the payment.

If the bank has asked for additional information, the ten working days starts from when they got the information.

If your bank decides not to refund the payment, you have a right to complain if you're not satisfied with the reasons. Your bank or building society must tell you about this.

If too much money has been debited to your account after a cash machine withdrawal, see Problems with cash machines.

Payment made to someone else’s account but not received

If you have instructed your bank or building society to make a payment and it does not arrive in the other person's account, you can ask your bank or building society to show you evidence that it did what you asked. There is no charge for this.

If the bank or building society proves that it did successfully send the payment, but the other person has still not received it, their bank or building society must investigate. There is no charge for this.

You may be charged if you have given the wrong details and you want the bank or building society to try to recover the money.

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Direct Debits

A Direct Debit is an instruction to your bank or building society which allows an organisation to collect payments from your account.

This is done using a Direct Debit instruction. Payments can only be made to the named organisation.

If there are any changes to the amount to be collected or to the collection date, you should be given at least ten days notice.

If you don't have enough funds in your account to cover a Direct Debit payment, your bank may not make the payment. It doesn't have to tell you that the payment hasn't been made. If the payment is made, you may incur bank charges for any unauthorised overdraft.

If either the bank or the organisation collecting the Direct Debit makes a mistake, for example, by taking the wrong amount, you are entitled to a refund from your bank. This is covered by the Direct Debit Guarantee Scheme.

You may cancel a Direct Debit at any time.

If you have a problem with a Direct Debit, you should contact your bank.

You can get more information about Direct Debit from the bacs website at www.bacs.co.uk.

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Problems with cash machines

The same withdrawal is debited twice

If the same withdrawal is debited from your account twice, you should check first that you haven't made two separate transactions which have been debited on the same banking day. This is most likely to happen over a weekend or on a bank holiday. It may also happen if you used another bank or building society's cash machine. In this case, the transaction won't show on your statement until a few days after the date on which you made the withdrawal.

If you find that you have been wrongly debited, you should contact your bank or building society as soon as possible and no later than 13 months after the date of the withdrawal. It is up to the bank or building society to show that the transaction was genuine and there was no breakdown in procedures or technical difficulty.

If you've not authorised the transaction, your bank or building society must refund the money immediately. If there is evidence to suggest you acted fraudulently or were negligent, they can delay the refund while they carry out further investigations. However, the investigation must be carried out within a few days.

You get less money than you asked for

If you get less money out of the cash machine than you asked for, this may mean that the wrong amount is debited from your account.

You should contact the manager at the branch where the machine is straight away or, if this isn't possible, your account manager. The bank or building society can confirm whether you got the wrong amount by checking the balance in the cash machine against its record of transactions. It may help if you have a witness who was present when you used the machine. It will also help if you made a note of the date and time of the withdrawal. If you got a receipt, you should keep it.

Your bank or building society must refund the money immediately. If there is evidence to suggest you acted fraudulently or were negligent, they can delay the refund while they carry out further investigations. However, the investigation must be carried out within a few days.

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Overdrafts

Banks may make a charge if your account is overdrawn. For more information about overdraft charges, see Bank charges. If your account is overdrawn and then you get paid, your bank could try to use this money to pay off your overdraft without your permission. However, you've got the right to ask them not to do this and to pay other expenses first, such as your rent or mortgage. This is called first right of appropriation. You have to ask your bank to do this in writing. Make sure you write the words 'first right of appropriation' in your letter.

You'll need to write to the bank with new instructions each time you make a deposit.

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Bank charges

Banks and building societies charge for some services. You must be given details of the charges before opening an account with the bank or building society. After you have opened an account, the bank or building society must keep you informed about any changes to charges.

For current, basic and instant access savings accounts, you will be given at least two months notice in advance of the changes taking effect unless you have agreed otherwise with your bank.

If you aren't clear why a charge has been made, you should ask for an explanation and a breakdown of the charge. If you're still not satisfied and feel that the charge should not have been made, you can make a complaint. Senior bank or building society staff may be able to agree to remove all or part of a charge, so it may be worth asking them to do this.

Unfair overdraft charges

Banks charge when you go overdrawn without an arranged overdraft facility, when you go over any agreed overdraft limit, or when there isn't enough money in your account to cover a withdrawal, such as a cheque. This is called an unauthorised overdraft. Charges for unauthorised overdrafts are often very high. Many people have complained that they are unfair and have asked for refunds.

Because there were so many complaints about unfair overdraft charges, the former Office of Fair Trading (OFT) took a test case through the courts and existing complaints were put on hold.  The Supreme Court has now decided that the OFT did not have the power to decide if the charges are unfair.  If you've made a claim for a refund of bank charges, it's likely that your claim will now be rejected, although your bank should treat you sympathetically if you can show financial hardship.

The situation is slightly different in Scotland where some sheriff courts are accepting claims and allowing the case to be heard at a formal hearing. Some of these cases have been settled out of court, with no further need for legal action. You may want to get specialist advice about this from your local CAB.

You can find sample letters for making a complaint about unauthorised overdraft charges on the Which? website at: www.which.co.uk.

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Chip and pin cards

Most payment cards such as credit cards and debit cards are now ‘chip and PIN’ cards. They include a microchip for security purposes and you put a PIN (Personal Identification Number) into a keypad instead of a signature when you make a payment.

However, you may still be able to use a payment card with a signature in some circumstances, for example, if you have a card issued in another country or if you have a disability which makes it difficult for you to use a PIN.

If you have a disability and want to use your signature instead of a PIN, you should ask your card provider for a chip and signature card. When these are swiped by a shop assistant, a prompt will show that a signature should be accepted. There is more information about chip and PIN on the Chip and PIN website at: www.chipandpin.co.uk. You can also get more information on using a signature instead of a PIN from the Payments Council at: www.payyourway.org.uk.

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Further help and information

On Adviceguide

The Money Advice Service

The Money Advice Service is a free, independent service. Their website has lots of useful information about bank accounts and other financial products. Go to: www.moneyadviceservice.org.uk.

The Financial Ombudsman Service

If you've gone through your bank or building society's complaints procedure and they haven't been able to help you, you can make a complaint to the Financial Ombudsman Service.

Financial Ombudsman Service
Exchange Tower
London
E14 9SR

Consumer helpline: 0800 023 4567 (free for people phoning from a landline) or 0300 123 9123 (free for mobile-phone users who pay a monthly charge for calls to numbers starting 01 or 02) (Monday to Friday from 8.00am to 8.00pm; Saturday from 9.00am to 1.00pm)
Email: complaint.info@financial-ombudsman.org.uk
Website: www.financial-ombudsman.org.uk

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