How banks work and the main types of account

A bank account is usually the first financial product you own, and it quietly shapes how you save, spend and borrow for years. Knowing what a bank actually does, who watches over it and what each account is for helps you choose well.

What a bank actually does

• A bank holds your money, moves it for you (card payments, transfers, salary) and lends money to people and businesses.
• Interest is the reward for saving and the cost of borrowing. Savers earn it as a percentage of their savings, and borrowers pay it as a percentage of their loan.
• Banks set loan rates using more than the central bank's rate: the chance that a borrower will not repay and the length of the loan both matter, so riskier loans usually cost more.
• According to the Bank of England, most money in a modern economy is created by banks when they make loans, not printed by the central bank. In the UK, bank deposits make up about 80% of all money.
• When a central bank raises its main rate, banks usually charge more on loans and pay more on savings; when it falls, the reverse tends to happen.

Who keeps banks in check

• In the UAE, the Central Bank of the UAE (CBUAE) is the regulator for banking and insurance. It licenses and supervises commercial banks, Islamic banks, moneychangers, finance companies and retail payment services.
• Firms must apply to the CBUAE for authorisation to carry out the activities it regulates, so check that a provider is licensed before you hand over money.
• The UAE has both conventional banks and Islamic banks that must comply with Shari'a. In 2022, Islamic banking made up 23% of total UAE banking assets (AED 845 billion).
• In the UK, banks must be regulated by the Financial Conduct Authority (FCA), and you can look any firm up on the FCA's Financial Services Register.

Current accounts: your everyday account

• A current account is for day-to-day money: receiving salary or allowance, paying bills and spending with a debit card.
• In the UAE, every account has its own IBAN (International Bank Account Number). Since 2012 an IBAN has been required for electronic payments into and out of UAE accounts, except credit card payments.
• Many UAE banks require a minimum monthly balance and charge a monthly fee if you drop below it, so check this before you open an account.
• Some current accounts come with an overdraft, which lets you spend more than you have. That is borrowing, and it costs money (see the loans lesson).

Savings accounts and basic accounts

• A savings account is for money you are putting aside. It pays interest, and some savings accounts in the UK are only available from age 18.
• Simple example: AED 2,000 in an account paying an illustrative 3% a year earns AED 60 over a year (2,000 x 0.03), before any compounding or fees. Real rates vary and change.
• Keep savings separate from spending money. It is easier to resist dipping into savings when they are not on the same card.
• In the UK, a basic bank account is designed for people with a poor credit history or low income. It usually has no fees but no cheque book and no overdraft.

Accounts for under-18s

• Banks usually treat anyone under 18 as a minor. One UAE bank's 2026 terms, for example, define legal age as 18 and allow only accounts designated for minors to be opened, by a guardian.
• In the UAE, minor accounts are commonly opened by a father or legal guardian, and many banks ask that the parent already banks with them.
• Once you reach legal age, the guardian stops operating the account and you normally need to update it in your own name. One bank's terms say a minor's account may be suspended if this is not done within one month of turning 18.
• Age rules for youth accounts differ between banks, so read the bank's own terms rather than assuming.

Is my money protected if a bank fails?

• In the UK, the Financial Services Compensation Scheme (FSCS) protects deposits up to 120,000 pounds per eligible person, per authorised firm. The limit rose from 85,000 pounds on 1 December 2025.
• Banks that share one banking licence count as a single bank for FSCS purposes, so the limit covers your total across all of them.
• Deposit protection rules are different in every country. Wherever you bank, look up the rules on your central bank's or deposit protection scheme's official website rather than relying on social media.