Basic bank accounts
People with a poor credit history can find it tricky to be accepted for a standard current account.
There are several options available, including basic, managed and credit union accounts, and prepaid cards.
In this guide we'll focus on the cheapest option: basic accounts from the high street banks.
What are basic bank accounts?
Basic bank accounts, often also called cash accounts, are the closest thing to a standard bank account available to those with poor credit, and they're often the easiest and best way back to getting one of those standard accounts.
Some basic accounts have previously only come with a cash card for use at ATMs, but most offer their users some form of debit card; as a result of the EU Payments Directive, all basic accounts must come with a proper payment card from September 2016 at the latest.
Account holders can also typically set up direct debits and standing orders from their account to pay rent and bills, and accept payments in such as pay and / or benefits.
Basic bank accounts generally don't pay interest, there's no option to get a cheque book, and holders can't borrow with an overdraft.
If a payment is due to go out but there isn't enough money in the account, the banks are allowed to refuse to allow the money to go out - but account holders shouldn't be penalised for failed payments or going overdrawn if such a payment can't be stopped.
This is fairly new. Basic accounts have previously been completely free to use as long as they're in credit, but many banks charged fees of up to £35 for failed payments or for a dip into the red.
But under the terms of an agreement between HM Treasury and nine of the biggest banking groups and building societies, made in late 2014, these penalty fees were due to be scrapped by the end of 2015.
Top basic accounts
The UK's two top basic bank accounts overall have generally been considered to be:
The Co-op and Barclays have historically been the most likely to accept all kinds of applicants - including recent bankrupts in the case of Barclays - as well as offering wide access to ATMs; while they charged some fees, they were lower than those of some other banks.
|Under 18?||Bankrupt?||Free debit card?||Free ATM anywhere?|
|Offered by all listed below||Barclays
Bank of Scotland (BoS)
Santander (cash card only)
By law, all banks offer must offer basic accounts, and they're also obliged to make them visible enough that potential applicants know to ask about them.
That means that each bank should offer clear and simple information on the features they offer, making it easier to see if it's suitable for us, and to compare with other accounts.
That's important, because they do vary - and sometimes by quite a lot. One rather unusual example is the basic account offered by Metro Bank. It's open to anyone aged 11 and above - but it can't be used for standing orders, direct debits and the like.
What to look for
So what are the features you need to look out for?
Free debit card
Top a/c! Barclay's Cash Card (more details)
Other big basic a/cs A-Z:
BoS cash account (more details)
Halifax Easycash (more details)
HSBC basic bank account (more details)
Lloyds Cash Account (more details)
Nationwide FlexBasic (more details)
Natwest Foundation account (more details)
RBS basic account (more details)
Santander basic account (more details)
TSB Cash Account (more details)
As we noted above, most basic bank accounts come with a normal debit card that allows purchases at the till as well as ATM withdrawals.
Santander are slightly unusual in that they issue basic account holders with two cards - a cash card for use at any ATM, and a Top Up Debit Card that must have funds transferred onto it before it can be used.
Metro Bank only issue a cash card. In an attempt to make up for not offering electronic payments, they allow account holders aged over 16 to withdraw as much money as they want in any one day, as long as they give a working day's notice for amounts of more than £1,000.
Free ATM access everywhere
Most banks now allow their basic account holders to get cash from any ATM for free, just like standard account holders can.
Other banks have restrictions on cash machine use, as follows:
- Nationwide: only Nationwide ATMs
- Santander: Top Up card can only be used at Santander and the Post Office; money withdrawn at the Post Office comes off the Top Up card's balance
Anyone with one of these accounts can also withdraw cash at Post Office branches.
Santander win points for making cash withdrawals more complicated than they really need to be. The cash card has no withdrawal limitations but can't be used for purchases; people heading out with just the Top Up card can only withdraw money from a Santander branch or ATM, or the Post Office.
Using a Santander ATM allows users to take money from either the card's balance or the basic account, but if the Post Office is the only option, the money will come off the balance on the Top Up card.
These type of restrictions don't matter for those who happen to live next to a participating branch, but they can be a real pain otherwise, and the Payments Council have argued that lack of ATM access can lead to financial exclusion.
Undischarged bankrupts accepted
Barclay's aren't the only bank that will consider applications from undischarged bankrupts. Virgin Money will as well - and they pay interest when the account is in credit, which is practically unheard of for a basic account.
"Our bank [was] doing far more than most," they said in explanation, "... our disproportionate market share of the basic bank account market has continued to grow significantly."
But Virgin Money aside, no other bank has stepped up to offer basic services to new bankrupts, and we're not holding our breath.
Low returned direct debit fees
As mentioned above, the biggest basic bank account providers have agreed to scrap the fees for failed payments. At the time of this update, most of those listed above have done so, but there are a few who still refer to such charges in their terms and conditions.
Previously these fees ranged from £8 to more than £30, so it was worth digging into the terms and conditions to find out who charged what, the conditions under which they applied, and whether they were subject to a cap, daily or monthly.
As with standard bank accounts, some basic bank accounts offer grace periods - giving holders up to a certain time of day (usually around 3pm) to deposit enough money to cover any outgoing payments - before they levy the failed payment fee, while others make three attempts at the payment before charging.
|Banks||Unpaid Item Fee||Maximum Charge|
|Bank of Scotland, Halifax, Lloyds Bank and TSB||£10||£30 per day|
|Natwest, RBS||£6||£60 per charging period (i.e. monthly statement)|
Note that even before they were being phased out, Santander and HSBC didn't charge unpaid transaction fees - but HSBC used to warn their basic account holders that they would consider closing an account if any one direct debit or standing order was refused three times.
This may sound harsh, but all banks have the right to stop a direct debit facility or even close the account if a customer often has returned items.
Finally, it's worth noting that some banks only offer basic in branch services - deposits and withdrawals - to holders of basic accounts.
All those we've listed above allow deposits over the counter, and most allow withdrawals. Only Santander have specific restrictions on normal withdrawals, limiting them to amounts of between £50 and £500 - but that applies to all customers.
When it comes to making withdrawals, there are replacements available - machines in the branch, ATMs and online banking - but for those who like going to the counter, it's worth bearing in mind that it's not possible in every branch.
How to apply
Once we've chosen the basic bank account that most suits us, it's time to apply.
ID and proof of address requirements
Opening a basic bank account typically requires two bits of paperwork: one official form of identification and another proof of address.
Here are the documents that will be valid:
Identification: Valid passport, UK driving licence, benefit books or letters, EU ID card.
Proof of address: utility bill or bank statement (usually no more than three months old, and not a mobile phone bill), council tax bill or mortgage statement (usually no more than six months old).
Note that these are guidelines only. Every bank has their own rules and may be able to offer guidance for those that don't have access to at least one item from each of the above categories.
Don't be alarmed if the bank or building society refer the application to a credit reference agency. Rather than being a full credit check, which can further affect our credit rating, it's likely to be another ID check, and shouldn't cause too much trouble.
Alternatives to basic bank accounts
For people recovering from serious debt problems it may be that going to the big banks isn't all that appealing.
Unfortunately, though, the alternatives to basic bank accounts have their own pitfalls: there are often fees or restrictions on getting hold of our money, for example.
We're going to list some options here but it really is worth being cautious. Getting away from the banks doesn't mean being entirely away from trouble.
People with managed accounts get someone else to look after their money for them: a money manager, who makes sure essential payments like rent and bills get paid.
The cash left when the essentials are paid is available to spend using a debit card, or, in some cases, a prepaid card. Because they're so hands on, managed accounts incur monthly fees, and sometimes a set up fee.
Particularly for those of us who've had trouble managing our own finances, handing control to a personal money "life coach" might sound appealing and rather convenient.
But the downside - other than having to pay someone to look after our money for us - is that, well, someone else is managing our finances.
For more information, take a look at our full managed bank account guide.
Credit Union accounts
Credit Unions were primarily set up to offer easier ways for members of communities to save and borrow but since 2007, many have also offered basic banking services - including debit cards and direct debit facilities.
The advantage is that most are geared towards helping those with poor credit histories and have general money help on hand.
The disadvantage is that not all credit unions can offer all services, and those that do may often charge a monthly fee for running the account.
Our guide to credit unions has more information.
Prepaid cards offer holders the flexibility of a debit card, but with a few safeguards - and drawbacks. Unlike credit cards, which work by letting us spend then pay the money back afterwards, prepaid cards only let us spend what we've already paid for.
That means we can't get into debt - but equally, we can't spread large payments in order to cover a large purchase or emergency spending.
Furthermore, prepaid card issuers charge fees: for holding the card, and sometimes for certain types of spending, and even topping up the balance - and those fees can quickly add up.
In early 2010, for example, MPs expressed fears that people using prepaid cards for benefits were losing a significant proportion of their cash almost immediately because of the fees being charged.
There's more information on these fees, and other details of how prepaid cards work, in our guide to them, here.