Basic bank accounts: Why the big secret?

Over one million people in the UK still don’t have their own bank account, a rather shocking statistic when you consider a basic bank account could, for many, be the first step into access to financial services.

If you aren’t one of the million, you might be one of the many more who needs a new home for their money. If you’ve decided to deal with your debt, a basic bank account could be right for you and be the first step to rebuilding your financial life, especially if you’ve had a poor credit history. Or this bank account could be the no fuss solution to store your money for free.

Basic bank accounts are just what the doctor ordered, but there is just one small problem −the banks do not advertise them very well.

In this guide we will tell you about basic bank accounts; who they’re for, how to get one and why the banks don’t advertise them to you.

What is a basic bank account?

Getting access to simple ways of storing and using your money other than hiding it under the bed isn’t a new problem.

If you’re one of the many people unable to get a regular bank account, you’ll know it can be an absolute nightmare. However, a basic bank account could be the solution for you.

This product was designed for people who are unable to open a current account due to poor credit scores and a chequered credit history. This account allows you to store and pay out money but without any overdraft or credit facility attached to it.

They come complete with a debit card and allow you to set up standing orders and direct debits.

The following all offer this account:

  • Barclays
  • The Co-operative Bank
  • HSBC
  • Lloyds, Bank of Scotland
  • Halifax
  • Clydesdale Bank
  • Yorkshire Bank
  • Nationwide
  • NatWest
  • Royal Bank of Scotland
  • Ulster Bank
  • Santander
  • TSB
  • Virgin Money

Are there any fees?

Since 1st January 2016, basic bank accounts have been free of all charges for the very first time.

If you were to open one of these accounts it would still be wise to keep a check on your balance as, although you cannot receive any charges for missed direct debits, you still may be charged by the company that hasn’t been paid.

Why do banks not advertise them?

They don’t make any money from them − plain and simple. In fact, they are a loss maker because of the administration costs of setting up the account, providing you with a debit card and producing statements.

Although most bank accounts in the UK do not come with monthly fees, the bank still has the chance to make money from you by offering overdrafts − which are chargeable − and we live in a day and age where most bank accounts now have them. The banks call this ‘cross subsidy’.

Therefore, the banks don’t tell you about these accounts as they don’t really want you to have them. Unless you specifically ask for them by name, chances are bank staff may not mention them as an option. Instead you will be given the normal account forms, could fail the credit check and ultimately be rejected.

This may lead you to ask ‘why do the banks bother having these accounts at all?’ If they didn’t, the Financial Conduct Authority (FCA) may force them to do so. This way, they can argue legislation isn’t needed as they already provide the accounts.

Unfortunately, the banks are not required to offer you the basic account if you have failed the credit check on one of their standard accounts. They are only required to tell you there is a free option before you apply for one of their current accounts. Not all current accounts are chargeable, so as long as you’ve been informed of this they have no need to mention the basic account option at all. In the eyes of the FCA the bank wouldn’t have mis-sold the account to you.

A simple rule change could stop this and it is something that Martin Lewis, founder of Money Saving Expert, has been campaigning hard for.

Who are basic bank accounts for?

The current account market is extremely competitive, with some of the big banks offering £100 deals to tempt new customers through their doors.

They do come with credit checks and contrary to popular belief there is no set criteria for this, so if you are turned down by one bank don’t assume that you’ll be unable to get a current account with another bank.

However, if you have a poor credit history with serious defaults, CCJs, you are on the insolvency register or have been through bankruptcy, it can be very difficult to get a standard bank account and you will need to open a basic bank account until you have sorted your credit problems out.

Remember, this is nothing to be ashamed about and you are certainly not alone, with an estimated nine million people now using them.

Who can open a basic bank account?

They’re particularly designed for people with poor credit scores who wouldn’t pass the credit check on a standard current account, but apart from a couple of exceptions, anyone can get a basic bank account.

You do not have to have poor credit to open a basic bank account, you may just like the option of there being no chance of you receiving any charges on your account. If you want to open an account to help you manage your money and which won’t allow you to go overdrawn, you’re entitled to do so, regardless of what the bank try and talk you into.

Remember, it is your choice and not theirs.

What ID do you need to open a basic bank account?

You will need to provide identification to open a bank account or you could be refused on the spot. This is a requirement of the FCA to prevent against fraud and money laundering.

To confirm who you are, you’ll usually need one (original) of the following:

  • Full, current passport
  • Current European Union member state identity card
  • Current UK photocard driving licence
  • Identity card issued by the Electoral Office for Northern Ireland
  • Benefit books/benefit entitlement letters; includes pension, Child Benefit, Income Support, Disability and Jobseeker’s Allowance
  • HMRC tax notification or assessment letter

If you cannot provide anything from the list above, you would need to contact the bank to see if there are any other things you can use, although it is usually down to the manager’s discretion.

What are the easiest basic bank accounts to get?

The three banks that are the most welcoming to customers with poor credit history are:

  • Barclays Basic Account
  • Virgin Money’s Essential Current Account
  • Co-op Cashminder (not available to people who have an undischarged bankruptcy on their credit files.)

Is there an alternative to a basic bank account?

Credit Unions

There are a few Credit Unions who offer bank accounts across the UK. Check the Money Saving Expert’s Credit Union guide to see if there is one local to you.

There is usually a joining fee and/or a commitment to keep a certain balance in your account to be a member.

Post Office Account

You can use the Post Office account if you receive Government benefits, pension, or tax credits.

You’ll need to contact the office that pays your benefit to open one of these accounts for you directly. You are required to show proof of ID and address to open one of these accounts.

It is a very basic account; you can have your benefits paid into it and you can withdraw with a cash card and that is it. You cannot set up direct debits, standing orders and there isn’t any form of credit facility available.

Fee Paying Accounts

There are a few prepaid accounts that don’t do any form of credit check, so providing they can verify your identity, they are available for all. icount Money and Think Money are prime examples.

Think Money can be quite pricey at £17.50 a month for a single account and £24.50 for a joint account. However, it does have the jam jar option available with it, meaning it separates your bill money from your available spending money so you avoid the risk of spending money you shouldn’t be spending. There are no fees for cash withdrawals at the ATM. The application only takes a few minutes.

icount Money has a one-off activation fee of £4.95 and the monthly fee is cheaper at £9.95. For no extra cost, you can sign yourself into the Creditbuilder™ on the account to help improve or repair your credit score. There is no extra monthly charge for adding another card holder to the account, just another one-off activation fee of £4.95. It will cost you 50p for ATM cash withdrawals. The application takes roughly two minutes and if you can be verified on the spot, you will be given your account number and sort code at the end of the application.

Should I switch to a basic bank account?

There are a few reasons you may want to consider opening a basic bank account. It might be that you require an account to separate your money into a spending account and a bills account and you do not like the risk of missed direct debit charges.

Alternatively, you may be entering into a debt solution and have outstanding debt on your current account. In these circumstances you may have to close your current account and could potentially fail a credit check for a standard account going forward. In this instance a basic account is perfect, as the credit checks are not as vigorous and your chances of being accepted are much higher.

Do you use a basic bank account? If so spread the word, as the banks don’t seem to be doing a very good job of it themselves!

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