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19 October 2020
More than one million people in the UK don't have a bank account, many because their credit score prevents it. Yet basic bank accounts could help them get into the banking system – these accounts come with a debit card and the ability to set up direct debits to pay bills, and usually only need basic ID to open them. We run through what you need to know about best basic bank accounts, then give our top picks.
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There's a tragic problem in the UK with banking exclusion. Up to 1.5 million people in the UK don't have a regular bank account, and if that's you, even doing simple things like paying bills can take a lot of effort.
Yet there is a solution called a 'basic bank account'. Basic bank accounts are products designed for those with poor credit scores. As the name suggests, these accounts offer a place for you to store your money and pay bills from, though they don't come with overdrafts, or many of the perks that standard bank accounts offer.
Our top pick basic bank accounts have the widest acceptance criteria, will give you a debit card so you can make payments in shops and online, and allow you to set up direct debits to pay bills (this can make bills cheaper than paying by cash or cheque).
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Before applying for a basic bank account, there are some key points about them you should be aware of...
To get a standard bank account you need to pass a credit check – this is where the bank assesses whether it wants you as a customer. Every bank has its own wish list of what's a perfect customer, so if one bank rejects you, don't assume all the others will too.
The credit check is often not too harsh, but if you've a poor credit history with serious defaults, CCJs or bankruptcy, it can be very difficult to pass the credit check and 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. While you may still be credit checked by the bank for a basic bank account (so it may show up on your credit report), it's usually only done to check your identity. Don't worry though, you're not alone – in the UK, there are almost eight million basic bank accounts open.
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.
You can open a basic bank account in branch, or sometimes online or over the phone, depending on the bank. As well as filling in an application form, you'll be asked to show some ID, and proof of address.
To confirm who you are, you'll usually need one (original) of the following:
Banks publish their own lists of acceptable ID, so you should check these too. Though if in doubt, it's easier to call the bank or visit a branch and ask them what you'll need.
If you don't have acceptable ID, you might not be able to open the account. But if this happens to you, it's not the bank being difficult – it needs to see certain acceptable ID documents to comply with money-laundering regulations (basically, it needs to check you're not a fraudster and you're opening the account for legitimate purposes).
Yet two banks have launched pilot schemes to help those who may not be able to fulfil the above requirements...
HSBC is working with charities Shelter, Crisis and Refuge (and their networks) to open accounts for people who don't have a fixed address of their own.
This can be a first step towards claiming benefits and getting into local authority housing schemes, so if someone you know is affected and might benefit, tell them to contact one of the charities above.
To open an account, you'll need to attend one of the selected HSBC branches with your case worker from the above charities. Bring along any ID or official documentation you have, as it will all help – but if you don't have any at all, your case worker will be able to vouch for your identity in branch. You'll be able to use the charity's address, your safe house address or a PO Box address on the application.
You can find a full list of the HSBC branches taking part on this HSBC page.
Halifax has been working with the Ministry of Justice, the Prison and Probation Service, the Scottish Prison Service and also directly with prisons in a scheme to set up bank accounts for prisoners who are soon to be released.
The bank account opening process starts before the prisoner is released, the idea being that having a bank account helps them adjust back to life outside the prison walls.
Banks can't charge you for the day-to-day running of a basic bank account. For example, you can't be charged for an unpaid direct debit or standing order, or charges for going into your overdraft (you won't have this facility anyway).
However, it's still wise to know exactly what money you have in the account, and to manage it carefully as you could still get charges if you didn't have the money to pay a bill from the company that hasn't been paid.
Plus we've heard a few tales of banks cancelling direct debit facilities, or closing accounts where they've had to bounce lots of payments. We don't think it's common, but just something to be aware of. Your bank should write to you before it does this.
You should also be aware that basic accounts can still charge you for things like using your debit card abroad, and for certain types of special payments from the account, like same-day CHAPS payments (you'll know in advance about the charges for special payments).
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.
Basic bank accounts are designed to help 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.
Yet they're usually open to anyone who wants to open one. They can be useful if you're struggling to, for example, manage your money, and want an account which won't let you go overdrawn. However, some banks only offer basic accounts to people who fail a credit check for their standard accounts, so it may be best to ask before applying whether your chosen bank does this.
The only people who categorically 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.
Although few banks in the UK charge you to use their current accounts (eg, packaged bank accounts), 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, 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, for example, setting up your account, and producing and sending your debit card and statements.
So often banks don't tell you about these accounts as they don't really want people to have them – you'll often find them hidden away in the corner of the bank's website, or you'll need to open them in a branch rather than applying online.
It's best to ask for these accounts by name, to avoid applying for standard current accounts and getting rejected.
We'd like it to be the case that if you apply for a normal account, and are rejected due to the credit check, the bank should be forced to offer you its basic account there and then. Sadly, that's not the case at the moment. We've our top picks below in this guide, but this is the full list of banks that are required to offer basic accounts:
While many banks offer these accounts (and the nine largest banking groups have to), 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 accounts which get this thumbs up are the Virgin Money M Account, Barclays Basic Account and Co-op's Cashminder. All three accounts allow you to set up direct debits/standing orders and give you a debit card which means you can withdraw cash from UK ATMs.
Below is a summary of the three accounts, so you can decide which is the best fit for you.
Virgin Money, Barclays and Co-op basic bank account details
|Accepts those with an undischarged bankruptcy||✓||✓||✓|
|Accepts those in an IVA, DMP, DRO or discharged bankruptcy (1)||✓||✓||✓|
|Accepts those with a record of fraud||❌||❌||❌|
(similar accounts exist for 16 to 17-year-olds)
|Proof of address plus one piece of ID required||✓||✓||✓|
|Credit check to confirm identity?||✓||✓
+ check if you're eligible for this account rather a standard account
Only an 'enquiry', which is only visible on your file to you
|Allows direct debits and standing orders||✓||✓||✓|
|Free access to UK ATMs||✓||✓||✓|
|In credit interest||Nil (2)||Nil||Nil|
|Unpaid direct debit charge||Nil||Nil||Nil|
|Open it||Phone/branch (3)||Online/branch||Online/branch|
|(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. (2) Has a linked savings account paying 0.5% AER variable. (3) You can apply online, but bizarrely you'll need to apply for the Virgin Money current account*. If you don't qualify for that, but are eligible for the M Account, it'll offer you that instead.
If you can't get – or don't want – a basic bank account, then there are some alternatives you can try. However, they're not available to all, and in many cases, they're not cheap.
Read the Credit Unions guide for more, including to see if there's one local to you.
There are a few debit card-based accounts out there that don't credit check, so are open to all – many of these come with monthly fees, but they're another option if you don't want any of the basic bank accounts above.
Yes, if you don't meet the identification or proof of address requirements needed by the bank they can reject you. You could also be rejected if you've a criminal conviction for fraud. If rejected, you've a right to ask the bank why, and if unhappy you could make a formal complaint. If you're still unhappy with the bank's decision, you can take it further to the free Financial Ombudsman Service.
If you can't provide any of the accepted forms of ID, it's best to contact the bank to explain the situation – it'll be able to tell you if any other ID is acceptable.
Yes you can. Just open a new basic account with the new bank and it'll process the seven-day switch for you. That means they'll move over all your payments going out, coming in and notify your old bank to close the account.
With most banks, you need to be at least 16 or over to open a basic bank account, though some banks may require you to be 18 or over. If you're under 18, you should also look at a young person's bank account to see if that's a better option.
No, none of the big banks offer a cheque book with its basic bank account.
Yes, you can. All of the accounts in our top picks give you a debit card.
Yes, many of the banks will allow you to access your basic account via online and telephone banking.
Yes, as long as you both qualify for it.
One of the big advantages of a basic bank account is that you can't rack up charges for going overdrawn. You can only spend the money you have in the account, though some may give you a small fee-free buffer in case you need it.
Direct debits are set up by the company you're paying. In most instances, the company will ask for your account details and they'll set up a direct debit for you. However, sometimes they'll send you a direct debit form that you need to fill out and hand in to your bank or send back. You can't set up a direct debit yourself.
A standing order is a payment you can set up yourself. You'll do this via your bank, in branch, on the phone or online. To set one up, you'll need the account details you're sending money to and you'll need to put in a set amount you want to send each time (you can change the amount with a day or two's notice).
Yes, you can use your debit card or cash card to withdraw money from an ATM. Some banks may limit the amount you can withdraw in any one day.
Yes. Banks have security systems in place that ensure fraudsters can't hack into your account, whether you're logged in online or on your phone. But you still need to be careful – never ever send your online/mobile banking information to anyone.
If you're using a mobile app, make sure you download your bank's official mobile app from your app store and make sure you update the app regularly with any new security features.
It's also worth keeping your computer up to date with Free Antivirus Software, so you're protected from viruses and spyware.
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