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The financial system in the UK is one of the largest and most sophisticated in the world. It encompasses everything from banking, investments, and personal finance, to business finance and financial regulation. This guide provides an overview of key aspects of finance in the UK, including the banking system, credit and loans, taxes, savings, pensions, and the regulatory environment.
1. The UK Banking System
The UK has a well-established and highly regulated banking system. It offers a variety of services for individuals, businesses, and institutions.
- Major Banks: Some of the largest banks in the UK include:
- HSBC – One of the world’s largest banking and financial services organizations.
- Barclays – A multinational bank providing a wide range of services including retail, corporate, and investment banking.
- Lloyds Banking Group – Includes Lloyds Bank, Halifax, and Bank of Scotland.
- NatWest Group – Includes National Westminster Bank (NatWest) and RBS.
- Santander UK – A subsidiary of the Spanish Santander Group.
- Banking Services: UK banks provide a wide range of services, including:
- Current Accounts: These are day-to-day bank accounts where wages are paid, bills are paid, and money is withdrawn or deposited. Some banks offer interest-bearing current accounts, but these are typically less common.
- Savings Accounts: These accounts are designed for people who want to save money, offering a small amount of interest. Different types include easy access accounts, fixed-rate accounts, and ISAs (Individual Savings Accounts).
- Mortgages: Home loans offered by banks, building societies, and other lenders. Mortgages can be either fixed-rate (the interest rate remains the same) or variable (the rate can change).
- Personal Loans: Unsecured loans for personal use, such as for buying a car or funding a holiday. Repayment terms vary depending on the loan size.
- Credit Cards: Used for making purchases or borrowing money with a credit limit. Credit cards often charge interest if the balance is not paid off in full each month.
- Online and Mobile Banking: Most UK banks offer online and mobile banking apps, allowing customers to manage accounts, transfer money, and access a range of other financial services.
- Building Societies: These are similar to banks but typically focus on providing mortgages and savings accounts. Well-known examples include Nationwide and The Coventry Building Society.
2. Credit and Loans
The UK has a developed system of credit and loans, allowing individuals to borrow money for a variety of purposes.
- Credit Scores: Credit scores are used by lenders to assess how likely someone is to repay borrowed money. Agencies like Experian, Equifax, and TransUnion collect and provide credit information. A higher score usually means access to better interest rates.
- Types of Loans:
- Personal Loans: Unsecured loans that do not require collateral. Typically for amounts between £1,000 and £25,000, with repayment periods ranging from 1 to 7 years.
- Secured Loans: Loans where the borrower provides an asset (like a house or car) as security. If the borrower fails to repay, the lender can take the asset.
- Payday Loans: Short-term loans, usually for small amounts, with high interest rates. These are generally considered risky and are regulated to protect consumers.
- Student Loans: Loans specifically for students attending university. Repayment is income-dependent and begins only once the borrower’s income reaches a certain threshold.
- Interest Rates: Interest rates on loans and credit cards vary depending on the type of borrowing, the lender, and the borrower’s credit history. Rates are set by individual lenders but must also adhere to guidelines set by the Bank of England.
- Overdrafts: An overdraft allows you to withdraw more money than is in your current account, but banks charge fees and interest on the overdraft amount.
3. Taxes in the UK
The UK tax system is overseen by HM Revenue and Customs (HMRC), which ensures that individuals and businesses pay the correct amount of tax. Here’s an overview of the main taxes in the UK:
- Income Tax: This is the tax paid on your earnings.
- National Insurance Contributions (NICs): NICs are contributions paid to fund state benefits like healthcare and pensions. Employees pay NICs on their earnings, and self-employed individuals also make contributions. NICs are deducted from salaries via the Pay As You Earn (PAYE) system.
- Corporation Tax: Businesses in the UK pay corporation tax on their profits.
- Value Added Tax (VAT): VAT is a consumption tax added to most goods and services.
- Capital Gains Tax (CGT): CGT is charged on the profit made from selling certain types of assets, such as property (other than your primary residence), shares, and other investments.
- Inheritance Tax (IHT): This is the tax paid on a deceased person’s estate (assets left behind after death).
- Council Tax: A local tax paid to local councils to fund local services. The amount depends on the value of the property and the area in which you live.
4. Saving and Investing
Saving and investing are crucial parts of managing personal finances in the UK, helping individuals grow wealth or prepare for retirement.
- Individual Savings Accounts (ISAs): An ISA is a tax-efficient way to save or invest money. There are several types of ISAs:
- Cash ISAs: These are savings accounts where you earn interest on your money without paying tax.
- Stocks and Shares ISAs: These allow you to invest in stocks, bonds, and other investments. The returns are tax-free.
- Lifetime ISAs: Available for those saving for their first home or for retirement. The government adds a 25% bonus to contributions up to a certain limit each year.
- Pensions:
- State Pension: The UK government provides a basic pension to individuals over a certain age who have paid enough National Insurance contributions.
- Workplace Pensions: Many employers offer pension schemes, where both the employee and employer make contributions. The auto-enrolment system requires employers to enroll eligible employees in a workplace pension scheme.
- Private Pensions: Individuals can also set up their own pension schemes, either through personal pensions or self-invested personal pensions (SIPPs).
- Investing: People can invest in a variety of assets, including:
- Stocks and Shares: Buying shares in companies listed on the stock market.
- Bonds: Lending money to governments or companies in exchange for interest.
- Real Estate: Buying property to rent out or sell for a profit.
- Investment Funds: These allow individuals to invest in a diversified portfolio managed by professionals.
- Financial advisor
5. Insurance in the UK
Insurance is essential for protecting against unexpected financial losses. There are various types of insurance available in the UK:
- Health Insurance: While the NHS provides free healthcare in the UK, some individuals choose to pay for private health insurance to access faster treatment or more specialist services.
- Car Insurance: It’s a legal requirement to have at least third-party car insurance in the UK if you drive a car. There are three levels of cover:
- Third-Party: Covers damage to others’ vehicles or property, but not your own.
- Third-Party, Fire and Theft: Includes third-party coverage plus protection against fire and theft of your car.
- Comprehensive: Covers all of the above and also repairs to your own vehicle.
- Home Insurance: Covers damage to or loss of your home and its contents. Policies can include building insurance (covering the structure of your home) and contents insurance (covering personal items within the home).
- Life Insurance: Provides financial protection for your family or dependents in the event of your death.
6. Financial Regulation
The financial industry in the UK is heavily regulated to ensure consumer protection and financial stability. Key regulatory bodies include:
- Financial Conduct Authority (FCA): The FCA regulates financial services firms and protects consumers by ensuring that firms meet required standards for transparency, fairness, and ethics.
- Prudential Regulation Authority (PRA): A part of the Bank of England, the PRA oversees banks, insurers, and major investment firms to ensure the stability of the financial system.
- Bank of England: The central bank of the UK, responsible for monetary policy, setting interest rates, and ensuring the stability of the financial system.
Conclusion
The UK has a well-established financial system that covers a wide range of services, from personal banking and investments to business finance and financial regulation. Understanding the basics of the UK’s banking services, taxes, savings, loans, and insurance can help you make more informed financial decisions. Whether you’re planning for retirement, managing debt, or saving for big purchases, the UK offers a variety of options to meet your needs.
Information about opening a bank account from South Africa
- If you want to open a bank-like UK account without proof of address, Wise, Monese, Revolut and Monzo are a few online services that may possibly set up a UK account without residency. All offer UK account numbers and sort codes and debits cards you can use in retailers or pay for items online.
- How can I open a bank account from South Africa
Check the exchange rate
You can find out the exact value of your money in GBP, using an online currency converter
Bank accounts
You will need to open a UK bank account to handle certain payments, such as your salary and some of your outgoing payments.
When you open a bank account in the United Kingdom you may need to supply the following, but it can also depend on each individual banks requirements.
Two documents: one to prove your identity and one to prove your address. This applies both in-branch and online.
Proving your identity is simple. You just need your passport, driving licence, or possibly identity card
You’ll also have to prove your address by providing another document.
Documents that you may be able to use as proof of address
Every bank has its own list of documents that are acceptable as proof of address. Broadly speaking, these include:
- a tenancy agreement or mortgage statement;
- a recent electricity or gas bill (less than 3 months old);
- a recent (less than 3 months old) bank or credit card statement that’s not printed off the internet; or
- a current council tax bill.
- TV Licence
- UK Drivers licence
- Recent credit card or bank statement
- Recent Building Society or Credit Union statement
Things to consider when choosing a bank
Because you’re new to the UK, you will have a limited credit history. Some banks are strict with their requirements, so opening a bank account with them may be difficult.
It may be easier to open an account with one of the UK’s largest banks – Barclays, Lloyds, HSBC or NatWest. These banks have been in business for a long time.
They also have a lot of experience dealing with people immigrating to the UK from other countries, so they’re a bit more understanding of your situation and may be more flexible with their requirements.
The Four big UK banks
Barclays
Barclays is a British universal bank that support consumers and small businesses through their retail banking services, and larger businesses and institutions through their corporate and investment banking services.
They operate as two divisions, Barclays UK and Barclays International, supported by a service company, Barclays Execution Services.
Barclays headquarters are in London, England.
Lloyds
Lloyds are a financial services group focused on retail and commercial customers.
They have millions of customers in the UK, and a presence in nearly every community.
Lloyds Banking Group plc is a British financial institution formed through the acquisition of HBOS by Lloyds TSB in 2009.
HSBC
HSBC is one of the world’s largest banking and financial services organisations. They serve more than 40 million customers through their global businesses.
Wealth and Personal Banking, Commercial Banking, and Global Banking & Markets.
NatWest Group
NatWest Group plc is a majority state-owned British banking and insurance holding company, based in Edinburgh, Scotland.
The group operates a wide variety of banking brands offering personal and business banking, private banking, insurance and corporate finance.
Recommend by our Facebook group
We asked our Facebook group which bank they would recommend by means of a poll and the results can be seen below:
| Rank | Bank | Recommended % |
|---|---|---|
| 1 | Lloyds | 31% |
| 2 | HSBC | 20% |
| 3 | Monzo | 17% |
| 4 | Barclays | 9% |
| 5 | Nationwide | 5% |
| 6 | Natwest | 4% |
| 7 | Santander | 4% |
| 8 | Halifax | 3% |
| 9 | Starling | 3% |
| 10 | Revolt | 2% |
| 11 | Metro | 1% |
| 12 | Royal Bank of Scotland | 1% |
Some of the banks in the United Kingdom
Guides and tools to help you find the best bank account
- Top cards for under-18s
- Basic bank Accounts
- Student bank accounts
- Reclaim bank charges
- Open banking explained
- Interest rates
- Sending money abroad
- Budget planner
- Money transfer credit cards
Financial planning
Financial planning is a way to meet ones life goals.
Essentially, it helps you be in control of your income, expenses and investments such that you can manage your money and achieve your goals.
Car Finance
Credit Cards
Find out your chances of being accepted for a credit card
Balance transfer credit cards
Credit card rewards
How do travel credit cards work?
The 7 need-to-knows when spending abroad
How to complain about your credit card
Bad credit bank accounts
If you’ve a poor credit score, you might have struggled to find a bank account that will accept you.
A basic bank account may be a solution.
Take a look through this guide, which may be helpful.
Basic Bank Accounts
Easiest-to-get basic bank accounts
Alternatives to basic bank accounts
What is a basic bank account ?
Six basic bank account need-to-knows
Basic bank accounts FAQ
Finance complaints
If you have an issue with your bank, building society, loan provider or packaged bank account and feel you’ve been dealt with unfairly, then raise your issue for free with Resolver.
What is credit rating and credit score ?
A credit rating shows how likely a typical lender would be to offer you credit.
When you apply for credit such as a loan, credit card or mortgage – the lender tries to predict your future behaviour based on the way you’ve acted in the past.
How to improve your credit score
Pay bills on time
Payment history is the single biggest factor that affects credit scores
Make frequent payments
If you are able to make small payments — often called micropayments — throughout the month, that can help keep your credit card balances down and improve your credit.
Ask for higher credit limits
When your credit limit goes up and your balance stays the same, it instantly lowers your overall credit utilization, which can improve your credit. Call your card issuer and ask if you can get a higher limit without a “hard” credit inquiry, which can temporarily drop your score a few points.
Dispute credit report errors
A mistake on one of your credit reports could be pulling down your score. Fixing it can help you quickly improve your credit.
Keep credit cards open
If you’re trying to improve your credit profile, closing credit cards can make the job harder. Closing a credit card means you lose that card’s credit limit when your overall credit utilization is calculated, which can lead to a lower score. Keep the card open and use it occasionally so the issuer won’t close it.
Top tips to help you improve your credit score.
Check your credit score
Loans
- Loans Eligibility Calculator
- Cheap personal loans
- Cheap personal car loans
- Loan cost calculator
- Personal Loan Calculator
Top Lifetime ISAs (LISAs)
How they work, who they’re for and which provider pays the most
Check the exchange rate
You can find out the exact value of your money in GBP, using an online currency converter
Scotland
Scottish currency is the British Pound (GBP) and all notes that say “Pound Sterling” are accepted. Both Scottish and English notes are widely used in Scotland
Information about Currency in Scotland
Some of the best banks in Scotland
- Royal Bank of Scotland. This is one of the best banks in Scotland, In 1727, the Royal Bank of Scotland was established in Edinburgh
- Clydesdale Bank Clydesdale Bank is a trading name used by Clydesdale Bank plc for its retail banking operations in Scotland.
- Bank of Scotland The Bank of Scotland plc is a commercial and clearing bank based in Scotland and is part of the Lloyds Banking Group, following the Bank of Scotland’s implosion in 2008
- Halifax. Halifax is a division of Bank of Scotland plc
- Barclays Barclays is a British multinational universal bank, headquartered in London, England.
- Lloyds TSB Lloyds Bank plc is a British retail and commercial bank with branches across England and Wales. It has traditionally been considered one of the “Big Four” clearing banks.
- HSBC. HSBC’s global business operations in Scotland include its retail bank, private bank, corporate bank and investment bank. Scotland is also home to several HSBC retail branches.
South African Expat Tax
