Basic Bank Accounts - Pros and Cons
Bad Credit, Loan Defaults, Missed or Late Payments Are Not an Issue
Mar 31, 2009
All financial institutions perform a credit check on their customers. Loan defaults, missed payments or County Court Judgements (CCJ's) will result in an applicant being declined for mainstream bank accounts. The basic bank account was introduced to help consumers avoid exclusion from the financial system because of low earnings or a bad credit rating.
Advantages of a Basic Bank Account
- Bad credit rating. A basic bank account is available to all customers, including those with a bad credit rating. Other mainstream bank accounts aren't available;
- Bankrupts. Bank accounts for undischarged bankrupts can be difficult to find, but there are some basic bank accounts available. The Nationwide flex account and Co-operative Bank cash minder account are the two most suitable bank accounts for undischarged bankrupts;
- Debit cards. Some basic bank accounts offer a debit card, such as a Visa Electron or Solo card. For example, the Co-operative Bank cash minder account offers a Visa Electron card;
- Cashpoint cards. All basic bank accounts for undischarged bankrupts and those with bad credit offer cash cards. This allows customers to withdraw up to £300 a day from cashpoint machines;
- Standing orders and direct debits. A basic bank account allows a customer to set up standing orders and direct debits to pay their bills;
- Online access. Due to the limited counter service, basic bank accounts normally offer online access. This means that those struggling with money problems can send BACS payments to those they owe money and aren't solely reliant on cash payments;
Disadvantages of a Basic Bank Account
- No interest. There is never any interest paid on balances held in basic bank accounts;
- Counter services. There are often restrictions imposed by banks on the use of counter services on basic bank accounts. For example, the Halifax Easy Cash account doesn't allow customers to make a withdraw over the counter for less than £300;
- Borrowing facilities. Basic bank accounts don't offer cheque books, cheque guarantee cards or an overdraft facility. However, this also means that it isn't possible to become overdrawn;
- Limited range of debit cards. Only a few basic bank accounts offer customers a debit card. The ones that do offer debit cards provide Visa Electron and Solo cards, which are available to under-18's. This can cause issues when making certain online transactions. For example, online gaming sites will normally request ID to make sure that a player isn't a minor;
- Stigma. The limited functionality of basic bank accounts can be perceived as a stigma. Bank staff will offer basic bank account customers different types of account which can be embarrassing.
A basic bank account provides the perfect solution for a bad credit customer. It allows someone to pay-in cheques, use a debit card, set-up standing orders and direct debits and use a limited counter service. They are suitable bank accounts for undischarged bankrupts.
If a bad credit rating has been caused by default on a credit agreement signed-up to prior to April 2007, it is worth checking whether an illegal credit card or unenforceable loan agreement is in place. This could lead to the debt being written off and any adverse credit entries being removed.
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