Basic Bank Accounts

It is a surprising fact that over a million people living in the UK have no bank account, and yet having a basic bank account can help people to gain access to the banking system. The main problem is that banks fail to advertise the existence of basic bank accounts and so many people are unaware of their existence. In this article, we look at what a basic bank account involves, the benefits associated with opening one and how to go about applying. Having a bank account is very important in these modern times in order to pay bills and receive payments, so opening a basic bank account could be the perfect solution for anyone who finds it difficult to be accepted for a standard checking account at their high street branch.

What is a Basic Bank Account?

Basic bank accounts are aimed at people who struggle to access a regular bank account because of financial problems or a poor credit history. This type of bank account provides a place where customers can store their money and make payments without giving access to credit options like overdraft facilities and credit cards. Banks supplying basic accounts to customers offer cash cards so that they can withdraw funds from their account from ATMs, but many also offer a debit card which allows payments to be made online and in stores, and many even allow customers to set up standing orders and direct debits which makes paying bills cheaper and easier.

Are They Completely Free of Charges?

Since the beginning of 2016, all basic bank accounts have been made free of any charges, however being aware of how much money is in your account and being able to manage it properly is very important, as even if you are not charged for an unpaid direct debit by the bank itself, you may find that you incur charges from the company that the payment was intended for. There are 10 banking groups which offer a fee free basic account. These include:

Co-Operative Bank
Lloyds Banking Group (which includes Lloyds, Halifax and Bank of Scotland)
Clydesdale Bank and the Yorkshire Bank
The RBS Group (including NatWest, Ulster Bank and RBS)
Virgin Money


Why Don't Banks Publicise These Accounts?

The reason why banks do not tend to advertise their basic accounts is because they make most of their money through charging fees and by offering overdrafts. As basic bank accounts do not allow the bank to make any profits, and in fact result in a loss for the bank due to administration costs, banks prefer not to let customers know that these accounts exist. This means that customers must approach the bank directly and ask for a basic account in order to open one as otherwise customers tend to be given a standard bank account application form which will result in the applicant being credit checked and probably rejected.

Who are Basic Bank Accounts For?

Basic bank accounts are aimed at customers that are unable to pass a credit check because of prior financial difficulties or credit problems including bankruptcy, CCJs or defaulted payments. Opening a standard bank account involves undergoing a credit check procedure which will eliminate anyone with a poor credit history, however a basic bank account does not involve a credit check and is therefore suitable for people who are not eligible for a standard checking account. A basic bank account is ideal for managing your money while you deal with your credit problems and it can even help to boost your credit rating.


Who can Open a Basic Bank Account?

Anyone who has had CCJs, defaulted payments or other credit problems in their history can apply for a basic bank account, although these accounts are actually open to everyone. This means that if you would prefer an account that does not permit you to become overdrawn or get into debt, a basic bank account is the ideal solution, although not every bank will offer a basic account to someone who is eligible for a standard checking account. Anyone with a criminal conviction for fraud will not be eligible for a basic bank account and anyone who fails the bank's identification check will also be prohibited from opening one.

What ID do you Need to Open a Basic Bank Account?

Anyone who wants to open a basic bank account will need a form of ID in order to not be rejected. This is necessary to comply with regulations about money laundering. The kinds of ID that will be accepted include:

A valid passport
An EU member state ID card
A UK photocard driving licence or full paper licence
An ID card issued by the Northern Ireland Electoral Office
A benefit book or entitlement letter e.g. child benefit, income support or pension
A tax notification or assessment letter from the HMRC

If you have none of these forms of ID, you may be able to use something else, so you should consult your bank.


Are There Alternatives to Basic Bank Accounts?

If you are not eligible for, or would prefer not to have a basic bank account, you could try one of these alternatives:

A credit union – some UK credit unions now have bank accounts which are accessible for people who have an undischarged bankruptcy. These are subject to a low annual joining fee and you will need to maintain a balance in the account to remain a member. As credit unions only serve their local community, you may or may not have one in your area.

Post Office Card Account – People who receive certain benefits like tax credits or the state pension and have no bank account into which they can be paid can open a Post Office Card account. These accounts cannot be opened directly by the account holder and so the office paying the benefits must be contacted first in order to open one of these accounts, and you must supply proof of your address and personal ID. These accounts supply a card which benefits are paid onto and which can then be used to withdraw funds until the balance has run out. There is no way to spend on the card or set up a direct debit and there is no facility for an overdraft.

A Fee Paying Account – some bank accounts run no credit checks however they charge a monthly fee. These accounts make it easier to manage your finances by separating the money required to pay bills from spending money, however you do pay for this privilege.