What are the differences between different types of bank?

Have you ever wondered what the difference between the big name banks and newer, modern banks? Picture the different types of banks as various types of coffee – cappuccino, espresso, latte, flat white – all of them are coffee, yet people will prefer one over another based on how much milk or froth they like. Just like you choose your coffee based on your preferences, you can pick a bank that aligns with your financial needs and style.  

So, here’s the run down of the different types of banks and three handy tips to help you work out which type you’d prefer to bank with.

Types of Banks in the UK

High Street Banks

High street banks are the most common type of banks you’ll find on your local high street, which is why they’re called that! They provide a wide range of services, from current and savings accounts to loans and credit cards. Some of the most well-known high street banks include Barclays, HSBC, Lloyds, NatWest and Santander.

They usually have a strong online and mobile presence, making it easy to manage your money on the go. 

Challenger Banks

Challenger banks are the fresh faces in the banking industry. They are often referred to as challenger banks because they are recently created and they often offer services not covered by the main established banks within the UK.

They often offer competitive interest rates and user-friendly mobile apps. Examples include Monzo, Revolut, and Starling. They’re perfect if you want a banking experience that’s entirely app-based and includes features like budgeting tools and instant notifications.

Building Societies

Building societies are similar to banks, but they have a cooperative structure. This means they’re owned by their members and often offer competitive savings accounts and mortgages. Nationwide Building Society is one of the largest and most well-known in the UK.

If you like the idea of being a member of your bank and having a say in its decisions, a building society might be a great choice.

Online-Only Banks

Online-only banks, as the name suggests, operate solely online. They offer various financial services, often with lower overhead costs, resulting in more competitive interest rates and lower fees. Examples include Atom Bank and Marcus by Goldman Sachs.

Three top tips

Evaluate the range of services

Before settling on a bank, consider the range of services they offer. Evaluate what services matter most to you and pick a bank that aligns with your financial needs.

  • High street banks tend to offer a wide array of financial products and services, including savings and current accounts, loans; mortgages and investment options.
  • Challenger banks, on the other hand, may focus on innovative features, like budgeting tools and real-time spending notifications.
  • Building societies might excel in mortgages and savings accounts.
  • Online-only banks may provide competitive savings rates but may not have physical branches.

Compare fees and charges

Understanding the fees and charges associated with each bank is crucial. Make sure the bank you choose offers transparency regarding fees and charges, so you’re not caught off guard.

  • High street banks may have a schedule of fees for various services, such as overdraft charges or foreign transaction fees.
  • Challenger banks and online-only banks often market themselves as low-fee options, but it’s essential to dig into the fine print and check for any hidden fees.
  • Building societies may have more straightforward fee structures, but it’s still vital to review them carefully. 

Consider technology and access to services

Easy access to banking services is a significant factor in the digital age. Consider your preferred way of banking. If you enjoy in-person interactions, you might lean towards high street banks or building societies. If you’re tech-savvy and prefer managing your finances online, challenger banks or online-only banks could be your go-to.

  • High street banks typically have a mix of physical branches and digital services, offering in-person and online banking options.
  • Challenger banks and online-only banks focus primarily on digital services, providing user-friendly mobile apps and web platforms.
  • Building societies often offer a balance between the two, with some physical branches and online services. 

Remember, there’s no one-size-fits-all solution when it comes to banking. What works for one person might not be the best fit for another.

So, whether you prefer the traditional charm of high street banks, the innovation of challenger banks, or the cooperative spirit of building societies, there’s a perfect fit for everyone. Just remember to evaluate your needs, compare your options, and make the most of the technology at your fingertips.

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