When you're already in debt, hefty bank charges only serve to exacerbate the problem. But if you're keen to take back control of your finances, a basic bank account could help get you on the right track.
What are basic bank accounts?
As the name suggests, a basic bank account is simply somewhere to keep your money and pay your bills. Though these accounts allow customers to set up direct debits and sometimes standing orders, there are no overdraft facilities, and no interest paid when you're in credit. In some cases, a bank will supply a debit card with the account, enabling customers to make payments both in-store and online, but many will equip you only with a cash card.
Basic bank accounts have obvious disadvantages, but there are people for whom they are the best, if not only, option. With a standard current account you'll have to pass a credit check before you will be accepted by a bank - fail the check and your rating slides even further, so if your score is low, a basic bank account may be the only account available to you. Even if you've had CCJs or defaults, you should still be able to open a basic account. Some, though not all, will accept undischarged bankrupts, but you may be turned down if you've had a criminal conviction for fraud.
Banks rarely publicise these basic accounts so you will often need to ask whether they provide such a service. Should you decide to go ahead, a bank will usually ask for proof of ID such as a driving licence, passport, ID card or benefits book.
However, do bear in mind that any mistakes that you make with your finances may result in sizeable charges. Though you can avoid the accidental overdraft problem, if a direct debit is returned unpaid because you do not have the funds in your account, you could incur a charge of around £25 a time. That said, for those with a poor credit rating, or who are looking to control their spending and stay away from the perils of overdraft facilities, a basic bank account is a sensible place to start.
What are my options?
According to Money Saving Expert, two of the best banks in terms of helping basic bank account customers are Barclays and Co-op.
The Barclays Cash Card Account allow holders to manage their account online, by phone or in branch, just like a regular current account, and payments can be made by direct debit or standing order, and you can withdraw up to £300 cash per day, though no cheque book is supplied. As expected, there is no overdraft facility, and unpaid direct debits are charged at £8. Barclays may even decide to permanently cancel direct debits or standing orders if funds are not available. They do, however, accept undischarged bankrupts.
By Co-op's Cashminder Account allows only £250-worth of cash to be withdrawn each day, and charges £15 for unpaid direct debits. On the plus side though, it will waive fees for unpaid items in order to prevent your account going overdrawn, provided that you have been in credit for a year. As with Barclays, there is no overdraft or cheque book with the account.
HSBC, on the other hand, takes a harsh but fair stance with its Basic Bank Account. As with the above accounts, direct debits and standing orders are free, and there's the added advantage of being able to make one-off payments to friends and relatives online or over the phone. Account holders can withdraw up to £300 daily, but banking is done only via the internet or phone.
Most importantly, if HSBC return any three standing orders or direct debits within a 12-month period, they will close your account, so this is not one for those prone to financial slip-ups.
Of course, there are other basic accounts available, as well similar services from credit unions (though these often charge a fee), but whatever bank you decide to go with, make sure you read the small print so you are aware of any possible charges or account closures you may incur.
Have you swapped your current account for a basic alternative? Tell us how you got on below...