Banks offer individual customers a variety of accounts, including a savings or deposit account and a current or checking account. Banks pay customers interest for money held in a savings account, which typically do not see much activity apart from perhaps a monthly contribution from the customer to build savings.
Current accounts are used for day-to-day payments, where the balance will typically rise and fall during the month as for instance salary is paid in and rent or other bills are paid out. The most popular bank account is the current account, which bank customers use for regular transactions. A current account is known in the US as a checking account, because of the continued popularity of checks (cheques). A current account usually allows customers to make and receive payments through a variety of methods.
Banks make part of their income from fees, and can generate substantial fee income from card usage. For neobanks that do not offer credit, almost all income will come from card fees. Banks can charge a fee for current account use that includes a certain number of card payments per month, or charge per card payment. The fees can differ widely by jurisdiction.
In some countries, banks will charge a monthly fee which includes all debit card payments and ATM withdrawals. This subscription type model is particularly popular among digital banks, and many now offer premium-type current accounts which come with perks such as a metal rather than plastic payment card.
We will read often during this course about financial inclusion, which means providing all citizens with access to a basic bank account. In 2015, states of the United Nations agreed to the 2030 Sustainable Development Goals. Financial inclusion is mentioned in 8 of the 15 goals. In the EU for example, citizens and residents are entitled to a “basic payment account”. The EU defines a basic payment account as:
“An account that covers standard transactions that you use in daily life, such as:
It should also include a payment card that you can use to withdraw cash and make purchases – both online and in shops. Where available, the bank should include access to online banking services with your account. However, they do not always have to include an overdraft or credit facility. In some EU countries, your bank might still charge you an annual fee for this basic payment account. This fee should remain reasonable.”
In the European Union, the only grounds for denying a person a basic payments account is for failure to comply with EU rules on money laundering and terrorist financing.
However, there are now many non-bank financial institutions offering a new type of account known as a mobile wallet, which is similar to a current account. While not offering the same level of protection as a bank current account, a mobile account can provide customers with the means to make and receive payments.