In January 2016 the major UK banks all introduced new basic bank accounts. One of the main aims was to widen bank account access to groups of people who have found it difficult or impossible to open an account.
These new style basic bank accounts are pretty good! They all let you set up direct debts and standing orders, have a debt card (though not all offer a contactless one) and have access to internet banking (though Virgin only allows a restricted version, missing some facilities.)
This includes people who are bankrupt who previously found it very hard to get a bank account. It also includes people in an IVA, DRO or debt management who need to change bank accounts but who are likely to be refused a standard current account because of a poor credit rating.
With the new accounts, if there isn’t enough money in your account to pay a direct debit or standing order, the payments won’t be made (so you don’t go overdrawn) but you will not be charged a fee.
Is your existing basic bank account one of the “good” new ones? In December 2016, an investigation found that 3.7 million people still have an old-style bank account and are being charged fees for failed transactions! Most of these – over three million people – are Lloyds customers. So if you had a basic bank account before January 2016, check that it has been changed so no fees are charged. If you are still paying bank changes, ask to switch to a new-style account.
UPDATE July 2017 Lloyds have announced that they are no longer charging their old style basic bank account holders any fees. About time!
Who offers these new accounts
You should be able open one of the following bank accounts if you are an undischarged bankrupt or have other major problems on your credit record:
- Bank of Scotland basic account
- Barclays basic current account
- Co-op Cashminder account
- Halifax Basic Bank Account
- HSBC Basic Bank Account
- Lloyds Basic Account (weirdly you can’t apply for this directly, you have to apply for a normal account first and be refused!)
- Nationwide FlexBasic account
- RBS (includes NatWest and Ulster Bank) Foundation Account
- Santander Basic current account
- TSB Cash account
- Virgin Essential Current Account
- Yorkshire Bank (includes Clydesdale) Readycash account.
My “top pick” is the Nationwide account – this has a contactless debit card, full mobile and online banking, text alerts and you can open it online.
If you are having difficulty getting an application approved because of id issues, Barclays, Co-op and Virgin Money have a reputation for being helpful.
The only reasons you should be refused one of these accounts are first if either you could get a “normal” bank or second if there is a fraud marker on your account. If you have an application turned down, ask the bank why – it has to give you a reason. If you have had any problems opening one of these accounts please let me know, for example by adding a comment at the bottom of this article.
Use your existing basic account?
If you already have a basic bank account that you would like to carry on using, you MUST go into your branch and asking them what their policy is. Some banks may let you keep this basic bank account, others (including Barclays) may say that account will be frozen so you will need to open another one.
Open a new account before or after you go bankrupt?
It may feel like a good idea to open one of the above basic bank accounts as part of your preparation for going bankrupt – this will allow you to get your salary and any benefits paid into the new account. If you want to do this two things are important:
- check that the new account isn’t going to be frozen when you go bankrupt!
- if you own any money to the bank you have chosen, don’t put much money into it prior to bankruptcy as the bank may help themselves to the money in the new account using the “right of set off” clause in the small print. (This isn’t a problem AFTER you have gone bankrupt as then your debts don’t exist any more so the bank can’t use right of set off.)
This is an update of an article written in December 2014 looking at why the banks were going to introduce these new accounts:
Extract from previous article:
The British Banking Association has announced that access to banking is being widened with the introduction of new fee-free basic bank account for people with poor credit. It is expected that the new accounts will be operational by the end of 2015. Wider access will have a significant impact on people who go bankrupt, as in 2014 most bank accounts in Britain are closed on bankruptcy.
Why changes are needed
There are about a million adults in Britain with no bank account, often because they have poor credit or no credit history at all. The government wants to make it easier for these people to have a “no frills” bank account with few or no fees because:
- it will comply with a new EU directive which says that that all European citizens must have access to basic banking facilities, including previously excluded groups such as refugees and foreign students. This has to be implemented in 2016 or before; and
- it will help the roll-out of Universal Credit. Universal Credit single monthly benefits payment will change the way recipients have to budget.
The current basic bank accounts, which often don’t have debit cards, online access and have high charges are not helpful to people with poor credit, who often have the most problems with managing their money. As with so many other areas of our society, the poorest people often end up paying more for services (cheque cashing, withdrawing money, getting discounts for paying by direct debit) and goods (being unable to buy cheaply online) than the better off.