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Accounts and Payments (Choosing a bank account (Account charges, Account…
Accounts and Payments
Choosing a bank account
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Some banks aim their accounts at particular types of customers and may therefore refuse to open an account for someone who does not meet the criteria for a particular account
Bank mandates
When a new account is opened , the customer signs a mandate which often forms a part of the account opening documentation
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Authorises the bank to accept and act on all instructions relating to the account (including payment instructions)
Sets out the signing authorities from whom the bank should accept instructions. Offshore trust and company businesses may have an authorised signatory list that includes their staff members
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Opening a bank account
- The customer chooses the type of account required
- The customer completes an application form
- The customer provides the bank with any due diligence documentation that it may require in order to provide the identity of the customer. This commonly involves providing the bank with a certified copy of a document (eg passport) which verifies the customer's residential (or reg office) address and providing a recent bank statement that verifies the customer's wealth or earning
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Corporate applicants
May be asked to provide due diligence documentation in respect of their controllers or other account signatories
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In all cases the rationale for the opening of the bank account, the activity of the entity, the source of funds, source of wealth and expected volume and value of transactions are likely to be requested
Types of bank accounts
Basic Bank Accounts
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Offer some features that current accounts provide, however the customer is not usually issued with a cheque book and does not have the ability to go overdrawn (this is an attraction for some people)
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Possible to receive funds directly into a basic bank account and they can be used to set up direct debits or standing orders
Current Accounts
More features than a basic bank account, they usually offer
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The facility to receive Bankers' Automated Clearing Services (BACS) payments directly into the account
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Customers may withdraw money on demand by using the above services and may also withdraw cash at the counter
Interest is usually earned, albeit at a very low rate
The interest rates may be tiered so that the higher the balance, the higher the interest rate earned
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A new current account switching service was launched in September 2013. The service is designed to make switching between one current account to another simpler for customers. Accounts can be switched within 7 working days with all existing direct debits and standing orders automatically transferred. A redirection service also directs any payments to the correct account for 13 months after the switch. Initiatives like this help to increase competition in the banking sector
Savings Accounts
Suitable for customers who seek a return on their savings while keeping them in a safe, accessible place.
Fixed term deposits
Involves the customer agreeing to despot a sum of money with the bank for a specified period of time
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Fixed terms could range from daily, to weekly or monthly, or could be fixed for one year or more
As the deposit is fixed and no withdrawals or additions are anticipated, the account does not offer the payment facilities that are available on a current account
Usually the interest rates paid on a fixed deposit increase the longer the funds are committed and the interest is applied to the account at the end of the term
The bank can offer a better rate of interest the longer the funds are committed as it knows it has use of the money for a specified period
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Penalties for breaking a fixed deposit are usually severe and a customer must ensure that they will not require access to the funds during the term
Administrators should be conscious of any liquidity requirements when fixing or re-fixing deposits at their maturity
Instant access accounts
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Interest rate payable is usually preferable and tiered in accordance with the level of funds in the account
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May provide that no interest will be payable if the account falls below a minimum balance eg £5,000
Other savings accounts
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Some accounts allow funds to be withdrawn on demand with instant access, while others require the customer to give the bank notice before funds can be withdrawn
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Some savings accounts require savings of a minimum savings amount each month while others are suitable for those with a large lump sum
Interest at varying frequencies may be applied, eg monthly or six monthly basis
Sharia Accounts
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Offer features similar to other kinds of accounts but do not pay interest or charge interest on the bank account
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Usually supervised by Islamic scholars who ensure that the account is operated in accordance with Islamic law and finance
Closing a bank account
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Some accounts may have conditions upon closing them however any such conditions must be made clear to the customer before the account is opened
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The bank should give reasonable notice to enable its customers to make other arrangements. Reasonable notice will differ from account to account
Facsimile indemnity
Where a customer wishes to communicate with a bank by facsimile, the bank may insist upon receiving an indemnity which absolves the bank from all responsibility and releases it from claims and demands that the bank may incur due to it having acted on faxed instructions
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