Everyone needs a bank account that they can rely on, one that doesn’t cause more trouble than it solves. So here are four reasons why people with financial problems should get a new bank account.
If you have a lot of problem debt, you may think you can’t change bank accounts because no-one else would let you have a current account. But the new Basic Bank Accounts that were introduced in 2016 are great and you won’t be refused one because your credit record is bad – even if you have gone bankrupt or started an IVA.
1) No charges at all with a basic bank account!
With the new-style basic bank accounts, you won’t get charged at all, even if there isn’t enough money in your account to pay a direct debit or a standing order. The bank won’t make these payments, so you still have that problem to solve, but you aren’t going to be hit by extra bank fees, making a bad situation worse.
2) No overdraft that traps you in debt
Many people find their overdraft is the hardest debt to escape from. It’s like trying to get to the top of a mountain up a slippery slope covered with gravel – a couple of steps up and you find yourself sliding back down. And the high overdraft fees make this even harder.
You may even find that your bank account decides to withdraw your overdraft, especially if you owe other money to the bank. This doesn’t happen that often but when it does, it can be a real disaster, causing a lot of stress and panic whilst you try to make sure your rent/mortgage and bills are paid.
By opening a new basic bank account, where you can’t have an overdraft, your old overdraft becomes just another debt you have to deal with. You can set up a standing order to pay £30 a month to it – some amount that is larger than the monthly overdraft charges! – and start chipping away at it. If you are in debt management, it can simply be included in your DMP.
3) Be safe – don’t use a bank you owe money to
Perhaps your overdraft isn’t too bad. Then you can face a different sort of problem if you owe money to your bank. If you want to make an arrangement to pay on a credit card or a loan you have with your bank, they can use the right of offset to just take money out of your current account and pay it off one of your other debts.
Suddenly your overdraft is now huge, your direct debits are not getting paid and you are getting bank fees added. The safe way to avoid this is to switch to a bank that you don’t owe any money too.
There are rules to protect you from this right of offset being used unfairly and leaving you in a position you can’t pay priority bills. But it’s better to be safe here than sorry and trying to cope with a complaint against your bank and a financial crisis at the same time.
If you are starting a DMP or an IVA, the firm setting this up should warn you about the right of offset problem and tell you to get a new bank account. Don’t be one of the people that ignores this good advice and hopes it won’t happen to them…
4. Have a fresh start
A new account can be a great boost to better budgeting:
- it’s simpler to see you only have the money coming in each month to divide between your bills and expenses;
- you avoid the high bank charges. When money is short there are better things to spend it on;
- have a hard look at all your direct debts and standing orders, perhaps some of them should be cancelled, not transferred to your new account;
- you may be able to change the date of the direct debit or standing order fro some bills. One that goes out the same day you get paid can make life simpler.
Above all, you aren’t always in the red :)
So which basic bank account should you get?
I’ve listed the new basic bank accounts here. Obviously you should rule out any bank that you owe money too. Most people don’t need to visit their bank branch often and other facilities such an online banking and contactless cards will feel more important.