Individuals going through bankruptcy and those that have bad credit issues may find their applications for standard bank accounts are turned down. Which alternatives could give banking services to people with an impaired financial track record? What do they offer?
What are Basic Bank Accounts?
Basic bank accounts offer a limited range of banking services. These accounts offer no credit facilities (i.e. no overdrafts). A basic product will allow the individual to have money paid into their account, to use direct debits and will generally come with a cash card to make withdrawals.
Most basic bank accounts won’t come with a cheque book and are unlikely to give a debit card or to pay interest. Some may restrict the ways that payments and withdrawals can be made. Although traditionally used by those with bad credit/bankrupts many high street banks will no longer accept bankrupts. According to research by Citizens Advice only two out of 17 banks (Barclays and The Co-operative Bank) will currently do so.
Are Credit Union Current Accounts an Option?
It may be possible for bankrupts and people with an impaired financial track record to take out a current account with a Credit Union. As well as general paying-in, withdrawal and direct debit facilities, it may also be possible to get a debit card with one of these accounts rather than just a cash card.
Not all Credit Unions will, however, use debit cards and some may restrict access. Most services will charge a small weekly or monthly fee and generally will not offer overdrafts or cheque books. Members may, however, be able to use union loans after a qualifying period.
How do Post Office Card Accounts Work?
Post Office Card accounts prove popular with those with credit issues, partly because there is no credit check involved in opening an account and because there are no charges. This option allows certain payments to go into the account such as benefits, State Pension payments and tax credits. Withdrawals are made at Post Office branches via a card.
This option will not, however, allow any other payments to be made into the account (i.e. Housing Benefit, salaries or occupational pensions). Withdrawals also have to be made over the counter and the card provided cannot be used in cash machines.
Are Managed Bank Accounts a Good Option?
Managed bank accounts, most of which come with no credit check, may also be worth considering. Here, the account is managed for the individual based around an essential expenses account (organised by the provider to ensure bill payment) and a spending account. This account holds the money left over after bills have been paid that the individual can spend. Most will come with some form of debit card.
These accounts may help some to manage their money better but they do come at a cost. Most providers will charge a joining fee and a monthly management charge. This could eat into available cash. Some providers will also insist on using a prepaid debit card rather than a regular product.
Those that are having difficulties opening a bank account because of bankruptcy or bad credit may find an account here that gives them a workable solution. The options available may not be as good as those that come with a standard current account but it may take some time to re-build a credit history to access regular products again.