More than one million people in the UK don't have a bank account. Yet basic bank accounts could help them get into the banking system - it's just banks don't advertise them very well.
This is a guide to the best basic bank accounts for people with poor credit who can't get (or don't want) standard bank accounts. So long as you have basic ID, you should be able to get one with a debit card, and the ability to pay direct debits.
In this guide...
What is a basic bank account?
There's a tragic problem in the UK with banking exclusion. If you're one of the million people who can't get a regular bank account, it's a nightmare. Yet there is a solution called a 'basic bank account'. This product is designed for those with poor credit scores.
As the name suggests, a basic bank account offers a place for you to store your money and pay your money from, without overdraft facilities or any in-credit interest.
Most basic bank accounts will give you a debit card, so you can make payments in shops and online, and all allow you to set up direct debits - which is great, as this can make bills cheaper than paying by cash or cheque.
Are they completely free of charges?
No - just because you don't have an overdraft doesn't mean there aren't charges. If you have direct debits going out, or try to make debit card payments when you don't have money in the account, you'll be charged an 'unpaid transaction fee' at up to £15 a time.
So it's crucial you ensure you know exactly what money you have in the account, and to manage it carefully. If you need help managing your money, the Budgeting guide has hints, tips and tricks to see where you're spending and help you cut down.
Why don't banks publicise these accounts?
Although few bank accounts in the UK charge you to use them, most accounts have overdrafts, which you pay for. These tend to make banks enough money, meaning they can offer 'free' banking to those not in their overdraft (the banks call it a 'cross-subsidy').
But with basic bank accounts, unless you make a mistake and get charged, there's no chance for the bank to make money from you as a customer. Instead, it makes a loss, because of the administration costs of setting up your account, for example, and producing and sending your debit card and statements.
So banks don't tell you about these accounts as they don't really want people to have them. Unless you specifically ask for them by name, bank staff may not mention the option. Instead you'll be given the normal account application forms, fail the credit check, and be rejected.
This may make you wonder "why bother having them at all?" We suspect it's just a political sop. Banks know if they didn't offer basic accounts, then they may be forced to do so - this way they can argue that legislation isn't needed as they already provide the accounts.
A simple rule change would instantly solve this situation. When you apply for a normal account, if you're rejected due to the credit check, the bank should be forced to offer you its basic account there and then.
Improved basic bank accounts to launch in 2015
By the end of 2015, everyone will be able to have a basic bank account. And unlike now (and this includes the accounts below) these new basic accounts will be completely fee-free - there will be no charge for failed payments (Virgin Money already has this - see below).
Nine banking groups will offer these improved accounts: Barclays, the Co-operative Bank, HSBC, Lloyds Banking Group (Bank of Scotland, Halifax and Lloyds), National Australia Group (Clydesdale Bank and Yorkshire Bank), Nationwide, RBS Group (NatWest, Royal Bank of Scotland and Ulster Bank), Santander and TSB.
We'll update this guide as the new accounts are launched, but you can find full information in the charge-free basic bank accounts unveiled news story.
Who are basic bank accounts for?
The current account market is extremely competitive. Some big banks throw out free £100 deals just to tempt new customers in (see Best Bank Accounts for the top deals).
But to get those you'll need to pass a credit check - where the bank assesses whether it wants you as a customer.
If you're rejected, there are a lot of different reasons why this might be, so don't assume because one bank doesn't want you, another one won't.
But if you've a poor credit history with serious defaults, CCJs, or bankruptcy, it can be very difficult to get a standard bank account. If this is you, it's likely you'll need to open a basic bank account while you sort your credit problems out.
If you want to improve your credit rating, or find out more about why banks might reject you for an account, see the Credit Scores guide.
Who can open a basic bank account?
Apart from a couple of exceptions, anyone can get a basic account.
They're particularly designed for people with poor credit scores, who won't pass the credit check for standard bank accounts. Because of this, past credit problems - such as CCJs, defaults, or having been declared bankrupt in the past year - aren't usually a barrier.
However, you don't have to have credit problems to open a basic bank account. If you want an account to help you manage your money and which won't let you go overdrawn, you can also opt for one. Be specific, or the bank might try to push you into its standard account.
The only people who can't have a basic bank account are people with criminal convictions for fraud (people with other convictions can still apply and be accepted, subject to fulfilling the other account-opening criteria) or people who fail the bank's ID checks.
You'll need some form of identification to open a basic bank account - if you don't have that, you might be rejected. This isn't the bank being difficult, it needs to see certain specific documents to comply with money-laundering regulations.
Most banks will also do ID checks (but not credit checks) with credit reference agencies to check you are who you say you are - so don't worry if you see a search on your credit file from the bank.
What ID do you need to open a basic bank account?
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 or UK full paper 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're struggling to provide these documents, there are other forms of ID you may be able to use.
If you can't provide any of the accepted forms of ID on the list, it's best to contact the bank to explain the situation - it'll be able to tell you if any other ID is acceptable.
Easiest-to-get basic bank accounts
While many banks offer these accounts, the anecdotal feedback we have is that three banks seem to welcome basic bank account customers, and are far more proactive in helping them.
The two accounts which get this thumbs-up are Barclays Cash Card, Co-op Cashminder and Virgin Money's Essential Current Account (the Co-op's & Virgin Money's accounts aren't available to undischarged bankrupts).
All three banks say that as long as you have proof of address and pass ID checks, you can get a basic bank account.
Barclays adds that it automatically offers a basic account to anyone who passes address and ID checks, but who can't get a standard account because of their credit score - which is something MoneySavingExpert.com has been campaigning for.
None of the accounts will give an overdraft (Barclays has a £15 buffer). But you'll get a Visa debit card, and you can set up direct debits and standing orders. Virgin Money's account even pays 1% AER interest if you're in credit
Because you can't go overdrawn, you need to make sure you have enough money in the account to meet any payments. If you don't have this, Barclays and Co-op will charge an 'unpaid item' fee, though Virgin Money won't.
However, if you try to make these payments too often without funds, these banks could cancel your direct debit facility, or close the account.
Barclays & Co-op basic bank account details
|Barclays Cash Card||Co-op Cashminder||Virgin Essential Current Account|
Accepts those with an undischarged bankruptcy
Accepts those in an IVA, DMP, DRO or discharged bankruptcy (1)
Those with a record of fraud
Proof of address plus one piece of ID
Proof of address plus one piece of ID
Proof of address plus one piece of ID
Credit check needed?
No credit check is needed (although an identity check with a credit reference agency may be carried out)
No credit check is needed (although an identity check is made to a credit reference agency)
Yes, but only to confirm identity & check whether you're bankrupt
Allows direct debits and standing orders
Free access to UK ATMs
Visa debit card given
Unpaid direct debit charge
£8 (max one a day)
£15 (first one each year is free, max 10 per 3mths)
In branch (can phone for an application form)
Phone/branch/online (can't have online access while bankrupt)
Phone/branch/online or at the Post Office
(1) When you are made bankrupt, your assets (your possessions, home, income etc) can be used to pay your debts. Bankruptcy usually lasts 12 months and after this time you are discharged, or freed, from your bankruptcy debts.
For details of other banks' basic accounts, see the Money Advice Service's PDF guide.
Are there alternatives to basic bank accounts?
If you can't get, or don't want, a basic bank account, then there are some other alternatives you can try. However, they're not available to all, and in many cases, they're not cheap.
A few credit unions across the UK now offer bank accounts, and most of these allow undischarged bankrupts to get them. You'll usually have to pay a small joining fee (£2-£5/yr) and/or commit to keeping a certain balance in your account to be a member.
Credit unions tend to serve local communities, so it's luck of the draw as to whether there's one near you. Check the Credit Unions guide to see if there's one local to you.
Post Office Card Account
If you're in receipt of certain Government benefits, pension or tax credits, and you don't have a bank account for them to be paid into, then you can use a Post Office Card Account.
You'll need to contact the office that pays your benefit as you can't open these accounts directly. You'll need proof of ID and address to get one of these accounts opened for you.
The Post Office Card Account is very basic - you get a card, and your benefits are paid onto that card. You can then use the card to withdraw cash, until the balance runs out. There's no overdraft facility, and you can't spend on the card or set up direct debits to be paid from the account.
There's a couple of bank accounts out there that don't credit check, so are open to all.
The Think Money* account is a prime example - anyone can open it, but it costs £14.50 a month (£21.25 for a joint account). On the plus side, it does help you manage your money - it separates money you need to set aside for bills into a separate account.
This way, you know that the cash available on the associated prepaid debit card is available for you to spend, and your bills are taken care of. But it's a large price to pay each month for a simple service that you can easily set up by opening an associated savings account yourself.
Try not to keep too much cash in your Think Money account. It's not protected by the Financial Services Compensation Scheme, so while there's no risk to your cash if the card issuer goes bust, there could be if the underlying bank did. See Are Your Savings Safe?
Get Martin's Free Money Tips Email!
For all the latest deals, guides and loopholes - join the 10m who get it. Don't miss out