Basic Bank Accounts: Why are the banks taking us for FUNTs?

Basic bank accounts

FUNT is a term coined back in 2008 for somebody who is ‘Financially UNTouchable’

And unbelievably, there are still over one million people in the UK do not currently have their own bank account, a rather shocking statistic really when you consider a basic bank account could help them into the banking system. There is just one small problem – the banks do not advertise them very well.

What is a basic bank account?

It is quite a big and fairly tragic problem in the UK. If you’re one of the million people unable to get a regular bank account it can be an absolute nightmare. However, there is a solution called a ‘basic bank account’. This product was designed for people with poor credit scores and a chequered credit history.

The clue is in the name of the account. It is a basic account which allows you to store your money and pay money from, without any overdraft or credit facility attached to it.  

Basic banks come complete with a debit card, despite many people believing otherwise, and allow you to set up standing orders and direct debits.

Basic bank accounts

Are there any fees with basic bank accounts?

No. Since 1 January 2016, basic bank accounts have been free of all charges for the very first time. If you were to open one of these accounts it is still wise to keep a check on your balance as, although you cannot receive any charges for missed direct debits, you still may be charged by the company that hasn’t been paid.

The following banks all offer a basic account: Barclays, the Co-operative Bank, HSBC, Lloyds, Bank of Scotland, Halifax, Clydesdale Bank, Yorkshire Bank, Nationwide, Natwest, Royal Bank of Scotland and Ulster Bank, Santander, TSB and Virgin Money.

Why don’t banks advertise basic bank accounts?

They don’t make any money from you plain and simple. In fact they are a loss maker, because of the admin costs of setting up the account, and producing the debit card and statements.

Although most bank accounts in the UK do not come with monthly fees, the bank still has the chance to make money from you by offering overdrafts which are chargeable and we live in a day and age where most bank accounts now have them – the banks call this ‘cross subsidy’.

Therefore, the banks don’t tell you about these accounts as they don’t really want you to have them. Unless you specifically ask for them by name, chances are bank staff may not mention them as an option. Instead you will be given the normal account forms, fail the credit check, and ultimately be rejected.

This may lead you to ask ‘why bother having them at all?’. If they didn’t the FCA may force them to do so, this way they can argue legislation isn’t needed as they already provide the accounts.

Unfortunately the banks are not required to offer you the basic account if you have failed the credit check on one of their standard accounts, which morally is wrong. At that point they are well within their rights to turn you away. They are only required to tell you there is a free option before you apply for one of their current accounts, and as not all current account are chargeable as long as this is covered, in the eyes of the FCA they haven’t mis-sold to you and they have no need to mention the basic account option at all.

A simple rule change could stop this and it is something that Martin Lewis, founder of Money Saving Expert, has been campaigning hard for.

Who are basic bank accounts for?

The current account market is extremely competitive, with some of the big banks offering £100 deals to tempt new customers through their doors. They do come with credit checks and contrary to popular belief there is no set criteria for this so if you are turned down by one bank don’t assume that you’ll be unable to get a current account with another bank.

If, however, you have a poor credit history with serious defaults, CCJs, you are on the insolvency register or have been through bankruptcy, it can be very difficult to get a standard bank account and you will need to open a basic bank account until you have sorted your credit problems out. It’s nothing to be ashamed about and you are certainly not alone with an estimated nine million people now using them.

Who can open a basic bank account?

They’re particularly designed for people with poor credit scores who wouldn’t pass the credit check on a standard current account, but apart from a couple of exceptions, anyone can get a basic bank account.

You do not have to have poor credit to open a basic bank account, you may just like the option of there being no chance of you receiving any charges on your account. If you want to open an account to help you manage your money and won’t allow you to go overdrawn then you’re entitled to do so – regardless of what the bank try and talk, you into. Remember, it is your choice and not theirs!

What ID do you need to open basic bank accounts?

You will need to provide identification to open a bank account or you could be refused on the spot. This is a requirement of the FCA to prevent against fraud and money laundering.

To confirm who you are, you’ll usually need one (original) of the following:

  • Full, current passport
  • Current European Union member state identity card
  • Current UK photocard driving licence or UK full paper driving licence
  • Identity card issued by the Electoral Office for Northern Ireland
  • Benefit books/benefit entitlement letters; includes pension, child benefit, income support, disability and jobseeker’s allowance
  • HMRC tax notification or assessment letter

If you can’t provide anything from the list above you would need to contact the bank to see if there are any other things you can use. Although it is usually down to the manager’s discretion.

What are the easiest basic bank accounts to get?

The three banks that are the most welcoming to customers with poor credit history are Barclays Basic Account, Co-op Cash Minder and Virgin Money’s Essential Current s.

Is there an alternative to basic bank accounts?

Credit Unions

There are a few Credit Unions who offer bank accounts across the UK. Check the Money Saving Expert’s Credit Union guide to see if there is one local to you.

There is usually a joining fee of £2-£5 to pay to join and/or a commitment to keep a certain balance in your account to be a member.

Post Office Account

You can use the Post Office account if you receive Government benefits, pension, or tax credits.

You’ll need to contact the office that pays your benefit to open one of these accounts for you directly. You are required to show proof of ID and address to open one of these accounts.

It is a very basic account, you can have your benefits paid into them and you can withdraw them with a cash card and that is it. You cannot set up direct debits, standing orders and there isn’t any form of credit facility available.  

Fee Paying Accounts

There are a few of bank accounts that don’t do any form of credit check, so providing they can verify your identity, they are available for all. icount Money and Think Money accounts are prime examples.

Think Money can be quite pricey at £17.50 a month for a single account and £24.50 for a joint account. However, it does have the jam jar option available with it meaning it separates your bill money from your available spending money so you avoid the risk of spending money you shouldn’t be. There are no fees for cash withdrawals at the ATM.

icount Money has a one of activation fee of £4.95 and the monthly fee is cheaper at £9.95 a month. For no extra cost, you can sign yourself into the Creditbuilder®

on the account to help improve or repair your credit score. There is no extra monthly charge for adding another card holder to the account, just another one off activation fee of £4.95. It will cost you 50p for ATM cash withdrawals. The application takes roughly 2 mins and if you can be verified on the spot you will be given your account number and sort code at the end of the application.

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Thinking Thrifty

David Naylor is the editor of the Thinking Thrifty blog. After a striking realisation about the direction his life was heading he set himself a 15 year plan to achieve total financial freedom. Join the journey!

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