Introduction

The range of ways in which we can make and receive payments in the UK is growing at a steady pace.

Where we used to rely on just cash and cheques, we now have a wide variety of options. In fact, such is the popularity of card payments and electronic payments, the number of payments we make with noncash methods has overtaken the number of payments we make with cash. Finding the right kind of payment method for each transaction you make can help you manage your finances. Yet knowing how to get the best out of what’s available can be difficult and isn’t always easy to understand.

That’s where the information below can help as it provides simple, practical advice on how and when to use each of the main types of payment that are available.

You’ll also find information on the security, speed and cost of each option, so you’ll know just what to use next time you make or receive a payment.

 

Question Cash
What is it?

Cash refers to money in the form of banknotes and coins. Of all the different payment methods, cash is still the most commonly used for everyday purchases.

Where can I use it? Almost everywhere.
What does it cost to use?

Nothing – although a few cash machines in the UK and many of those abroad will charge you for withdrawing cash.

How quickly is it processed? Immediately.
What kind of security is provided?

It’s not advisable to carry around large amounts of cash - if it is lost or stolen it’s unlikely that you’ll get it back. Some home insurance policies will cover you for lost or stolen cash – although usually for a few hundred pounds at most.

Do I need a bank account to use it?

No, but you will need one to withdraw cash with a debit card or to get cashback in a shop.

Anything else I should know?

£2 and £1 coins are ‘legal tender’ in unlimited amounts; 50p and 20p pieces are legal tender in amounts up to £10; 10p and 5p pieces are legal tender in amounts up to £5 and 2p and 1p pieces are legal tender in amounts up to 20p.

 

Question Cheque
What is it?

A cheque is a paper voucher linked to a current account. When you write a cheque to someone else you fill in the name of the person or business you are paying and the amount in both words and numbers. The other person then pays the cheque into their bank account and the respective banks arrange for the money to be moved from one account to the other.

Where can I use it?

Potentially for most types of payments to individuals or businesses, although high street retailers in general no longer accept cheques.

What does it cost to use?

Nothing, as long as your account is in credit. However, if you use a cheque casher to pay your cheque in it is likely that they will charge you for the service.

How quickly is it processed?

If you pay someone by cheque it will only start to be processed when they pay it into their account, which might not be straight away. If you pay in a cheque you will be able to withdraw the funds a maximum of four working days later and the money is yours to keep after six working days, even if the cheque subsequently bounces.

What kind of security is provided?

If your chequebook is stolen and you tell your bank straightaway then you won’t be liable for any resulting fraud. When it comes to receiving cheques you should never accept a cheque from someone unless you absolutely know and trust them.

Do I need a bank account to use it?

Yes, and it’s up to you to make sure you have enough money in your account to ensure that any cheques that you write can be paid.

Anything else I should know?

Although cheques remain legally valid for six years you will probably find that it will be rejected for payment if you pay it in when it’s more than six months old.

 

Question Debit Card
What is it?

A debit card is linked to your current account and will allow you to withdraw money at cash machines or get cashback in shops that offer that service.

Where can I use it?

A debit card can be used to pay for goods and services everywhere in the UK, online and abroad. Over a million UK businesses accept them, in shops and online; and they can be used in the UK’s 70,000 cash machines.

What does it cost to use? Nothing if your account is in credit. If you go overdrawn then you’ll probably have to pay fees and interest charges. Some retailers may charge you a small fee for using your debit card or set a ‘minimum spend’. This is a commercial decision though and can vary from retailer to retailer.
How quickly is it processed?

Typically the amount of the purchase is debited from your account on the same day, although it can depend on how quickly the business where you have used the card sends the transaction information to their bank. Most businesses do this within a day of the transaction but some do take longer.

What kind of security is provided?

If you are an innocent victim of fraud you have legal protection under the Payment Services Regulations and your bank should refund you immediately. However, you still need to alert your bank as soon as you are aware of any fraud on your card.

Do I need a bank account to use it?

Yes. You need to be sure there is sufficient money in your account to make any purchase – otherwise your card might be declined by the retailer or you could be charged for an unauthorised overdraft.

Anything else I should know?

If you have trouble using a PIN, speak to your card issuer about alternatives.

 

Question Credit Card
What is it?

A credit card is used to buy goods or services on credit. When you use a credit card to buy something, you are borrowing money from the credit card company. In due course, you’ll have to repay the money and pay any interest that might be due.

Where can I use it?

Over a million UK retailers take them, in shops and online, and you will be able to use your credit card abroad as well. Some businesses might charge to accept credit cards, or set a ‘minimum spend’ for their use.

What does it cost to use?

If you don’t pay your monthly balance off in full you’ll pay interest on what you’ve spent. Some credit cards also have an annual fee. If you withdraw cash at an ATM using a credit card you will be charged a fee and you will pay interest from the date of the withdrawal.

How quickly is it processed?

Typically the same day – but you don’t need to pay until the date detailed on your monthly bill.

What kind of security is provided?

Credit cards have protection for purchases over £100 and less than £30,000 via Section 75 of the Consumer Credit Act. Your credit card company is jointly responsible, along with the supplier of the goods or services, if the goods fail to arrive, are faulty or the company you are buying from goes out of business.

Do I need a bank account to use it?

No – but the card company will check your credit status before giving you a credit card, and having a bank account will help.

Anything else I should know?

Some cards offer rewards, like loyalty vouchers or cashback. Any charges for using your card, such as using it abroad, will be detailed on the back of your statement. If you have trouble using a PIN, speak to your card issuer about alternatives.

 

Question

Contactless Card

contactless

What is it?

A contactless card is a debit or credit card that enables purchases costing £30 or less to be made by just touching the card against the payment terminal rather than inserting it into the machine and entering a PIN. You can tell if you have a contactless card if you see the contactless ‘ripple’ symbol on the front or back of your card.

Where can I use it?

Contactless payments are accepted in a wide range of shops, pubs, cafes and restaurants. A retailer that accepts contactless payments will display the following contactless symbol at the terminal.

What does it cost to use?

Typically there are no charges for making a contactless payment in the UK. You should check your card provider’s terms and conditions if you plan to use a contactless card overseas.

How quickly is it processed?

As with other types of credit and debit cards, transactions are usually processed on the same day although it can depend on how quickly the business where you have used the card sends the transaction information to their bank.

What kind of security is provided?

Contactless payments are very secure. They have the same protection as chip and PIN payments, making them safer than cash. Contactless cards and devices are embedded with multiple layers of security to protect you against fraud.

Do I need a bank account to use it?

Not necessarily, as some pre-paid cards have contactless capability and do not require you to have a bank account.

Anything else I should know?

From time to time, when you try to make a contactless transaction you will be asked to enter your PIN to verify the payment - as an added protection from fraud.

 

Question Prepaid card
What is it?

Prepaid cards are stored-value cards which you pre-load with credit before buying goods and services. The stored-value is reduced as payments are made.

Where can I use it?

Prepaid cards carry the MasterCard or Visa symbols and can be used in shops, online, or in cash machines where these logos are displayed. Prepaid cards may be an attractive option for people travelling overseas as you can pre-load them with currency before you go away.

What does it cost to use?

Different prepaid cards have different charging structures. Most charge a registration fee, and some charge a top-up fee when you add money to the card. Some prepaid cards also charge for cash withdrawals and some even have an inactivity fee.

How quickly is it processed?

Any purchase amount will automatically be deducted from the card balance straightaway.

What kind of security is provided? Check the terms and conditions with the card provider to find out what fraud protection you have.
Do I need a bank account to use it?

No. You cannot borrow money on a prepaid card, so you can’t go overdrawn or get into any debt. For this reason there are no credit checks before you take out a prepaid card. Once the money on the card runs out, you can’t spend any more until you have loaded some more funds.

Anything else I should know?

Most prepaid cards can be topped up online. This facility may be useful to parents wanting to send money to a child who is overseas or travelling.

 

Question Standing Order
What is it?

A standing order is an instruction you give to your bank or building society to authorise a payment for a set amount, usually on a regular basis, to be made to another UK bank or building society account. On the day you have specified, your account will be debited and the money transferred to the person or business receiving the money.

Where can I use it?

Standing orders are typically used when you want to pay a person or business a set amount on a regular basis. They are mainly used to make rent payments, pay magazine subscriptions, monthly charity donations or to make a regular payment into a savings account. A standing order amount remains the same, unless you amend your instruction.

What does it cost to use?

Nothing, if your account is in credit. Just like with Direct Debits, if you don’t have enough money in your account to cover the standing order your bank can refuse to make the payment and can charge you. Even if they do make the payment you might go into the red without noticing – which means you’ll have to pay overdraft
charges.

How quickly is it processed?

Immediately, on the scheduled weekday. If the specified day (e.g. the 10th of every month) falls on a weekend or Bank Holiday, the payment will be taken on the next working day.

What kind of security is provided?

You will be refunded if you are the innocent victim of fraud. However, if you’ve provided incorrect details and the money has gone to a different account, it may be difficult to get it back.

Do I need a bank account to use it?

Yes. If you have insufficient funds in your account on the day the standing order is due to be paid the bank will try to take the payment again, later the same day, which gives you an opportunity to pay money into the account to allow the standing order to be processed.

Anything else I should know?

When you set one up, make sure you provide the correct sort code and account number of the person or business you want to pay to ensure the payment is processed correctly. If you are paying a business, a Direct Debit gives you more protection so ask if you can pay that way instead.

 

Question Direct Debit
What is it?

A Direct Debit is a regular payment that you have previously authorised and is debited from your account by the company that has provided you with a service.

Where can I use it?

These are typically used to make regular payments for life, car and home insurance, council tax, utility bills and subscriptions. Over 20,000 UK companies are authorised to accept them.

What does it cost to use?

Nothing, if your account is in credit. If you don’t have enough money in your account to cover the Direct Debit your bank can refuse to make the payment (and they can charge you up to £25). Even if they do make the payment you might go into the red without noticing – which means you’ll have to pay overdraft charges.

How quickly is it processed?

Immediately on the due date or, if the payment date falls on a weekend or a Bank Holiday, the payment is made on the following working day.

What kind of security is provided?

You have protection via the Direct Debit Guarantee. If either the bank or the organisation collecting the Direct Debit makes a mistake (such as taking the wrong amount) you can get an immediate refund from your bank. If you have a problem with a Direct Debit, you should contact your bank.

Do I need a bank account to use it?

Yes. You will need to supply the company you are paying with your account details, including the name of your bank, your sort code and account number. They will either take this information over the phone or online, or by using an instruction that you sign and return to them.

Anything else I should know?

Businesses like Direct Debits as they have more certainty about when they get their money and it makes their administration more efficient. As a result customers willing to pay by Direct Debit can often find cheaper deals, particularly for their energy supply.

 

Question Faster Payments
What is it?

The Faster Payments Service allows you to make electronic payments almost instantaneously, seven days a week, 24 hours a day. The payments are typically made by phone or internet banking to transfer money between accounts, to other people or to pay bills.

Where can I use it?

If you bank online or by phone you can make one-off or regular payments to any UK bank or building society account, at any time of the day, any day of the year.

What does it cost to use? Nothing, if your account is in credit.
How quickly is it processed?

Your account will be debited immediately and the recipient typically receives the money in a matter of minutes.

What kind of security is provided?

It’s vital to use the correct sort code and account number of the person or business you want to pay, as once you have made a payment this way, it can’t be cancelled. Entering these details incorrectly could mean your money ends up in someone else’s account and issues may arise around getting it back.

Do I need a bank account to use it?

Yes.

Anything else I should know? Always double check the account number and sort code you are making a Faster Payment to - once you have sent the payment it can’t be cancelled.

 

Question

CHAPS

What is it?

CHAPS is an automated payment system that is used to make high-value payments on the same day in the UK. Operating on working days between 0600 and 1620, it is primarily used for transferring sterling payments from one financial institution to another. However, it can be used by individuals tooFor individuals it is mainly used for high-value payments, such as buying a house.

Where can I use it? For individuals it is mainly used for high-value payments, such as buying a house.
What does it cost to use?

Customers are charged by their bank or building society for making a CHAPS payment – typically around £20 to £30.

How quickly is it processed? CHAPS payments are processed the same day.
What kind of security is provided?

You must authorise the payment in advance, and you’ll be refunded if an unauthorised payment is made from your account.

Do I need a bank account to use it?

Yes. When you set up a CHAPS transfer you will normally need to visit a branch of your bank or building society, taking along your bank card and a form of identification such as your driving licence. Some banks will also let you make a CHAPS payment using online banking.

Anything else I should know?

Always take care to provide the correct sort code and account number. For consumers making a low-value transaction, a Faster Payment is likely to be a more convenient and cheaper option.