It's hard to imagine life without a current account, but this is the stark reality for thousands of Britons. We look at what alternatives are out there if you can't get a bank account.
In our increasingly paperless society life without a bank account is becoming incredibly difficult. After all, you now need a bank account to receive your wages, state benefits or pension payments, not to mention for paying your utility bills and the like via direct debit. In fact many of the larger utility companies are now penalising customers who don’t pay by direct debit.
If you have a blemished financial past and are finding it difficult to get accepted for a current account it can feel like you're running out of options, but there are alternatives....
Why would you be refused a bank account?
If you're refused a bank account the first step is to understand why. This will help you to decipher what went wrong and to choose the right financial solution going forward.
There are a number of reasons for why you could have been turned down for a bank account. These include:
- Having a poor or no credit history - your credit rating is usually checked when you apply for a current account.
- Insufficient ID - if the account provider can't verify who you are, they won't give you an account.
- Being on a low salary - many standard current accounts specify a minimum monthly income so check the application criteria before you apply.
- Being too young - a number of standard current accounts specify a minimum age, so check the application criteria before you apply.
- Having too large an overdraft - the account provider may not want you to transfer your debt.
- Undischarged bankruptcy - this can make getting a standard current account impossible until it's cleared.
- Defaulted payments - these can impact your credit history and make you seem 'less attractive'.
- History of fraud - this will severely impact your ability to get approved for a current account.
What are your options?
As most current accounts operate on the basis of making credit available to customers in the form of an overdraft, banks will be unwilling to offer their facilities to those they consider a credit risk. However, there are still a number of options open to those who, for whatever reason, are unable to open a standard current account.
These alternatives offer the same basic services as a current account, but because they do not offer credit, are ideal for those who are on a low income or who have a poor credit rating.
1. Basic bank accounts
A basic bank account does exactly what it says on the tin and only offers you the most basic of banking services. It can be used to pay your wages, cheques or cash into and can also be used to pay bills and direct debits.
Unlike a current account most basic bank accounts do not offer overdraft facilities or cheque books and many do not provide debit cards either. Instead, they will usually only come with a cash card which can be used to withdraw cash from most of the major high street lenders’ cash machines.
Most basic bank accounts do not require you to pay in an opening balance or charge any fees for usage. However, you should be aware that they can charge hefty fees for any unauthorised use. They are likely to cap any overdraft buffer they offer at £10 and will refuse payments that would take you over this limit (and may charge you a 'returned payment' fee).
You will find that many of the high street banks and building societies will offer basic bank accounts to their customers - in fact it is soon becoming a legal requirement to do so.
However, the features, benefits and 'application criteria' they specify will vary from provider to provider, so it is a good idea to check our basic bank account comparison table in order to find the one that’s right for you.
It's worth noting that if you are turned down for a basic bank account you are entitled to find out why from the account provider so it's definitely worth asking.
2. Prepaid cards
Prepaid cards operate on the same basis as a basic bank account in that they do not offer you access to credit. This means that they are suitable for those with a poor credit history as, unlike applying for a credit card, you won’t be credit checked when you apply. The only things likely to get your application for a prepaid card turned down are a lack of a stable address or if you are lacking proof of identity.
Like basic bank accounts, you can have your wages credited directly onto most pre-paid cards and then can use them to pay bills or make purchases as you would a debit or credit card. This means you can take advantage of the benefits of shopping online and avoid the drawbacks of carrying large amounts of cash on your person, such as safety.
It is important to be aware that most prepaid cards will charge you when you top up or spend on the card which can make them an expensive alternative. For this reason you should think about how you need to use the card and compare the features and charges accordingly before you apply. This will mean you pay as little as possible for your day to day spending.
One point to note is that some prepaid cards will allow you to build a credit rating through 'responsible use', although they are likely to charge you for doing so. That said, if you are lacking a credit history or are looking at improving your previous one, this is an avenue that it may be worth considering if you don't have any other way of improving your financial standing.
3. Credit Unions
Credit Unions are community based versions of building societies and some offer current account facilities to their customers.
Like basic bank accounts they usually enable you to make direct debit payments and set-up standing orders but while some offer debit cards with their accounts, many offer cash cards instead. Again, cheque and overdraft facilities aren't usually provided.
A significant drawback for credit union based accounts is that they are usually only available to people living in a certain area or working in a certain industry. This means you have to meet their strict application criteria in order to be eligible for a current account. It's also worth noting that some credit unions will charge their account holders a monthly fee.
What other options are there?
Free debt advice
If you are struggling with significant debts then it is always best to deal with them, rather than exhausting all other options in the pursuit of gaining more credit. It's important to get free, impartial advice from someone that you can trust. There are a number of charities that offer financial advice; you can read our article to find out more.
As well as being independent and impartial, their advice can help you deal with your debt problems in simple steps such as drawing up a budget and prioritising your debts.
Improve your credit rating
If it is your credit rating that is hampering you getting access to credit then there are a number of similar steps you can take to improve your credit rating.
- Get on the electoral roll. If you’re not on it then it’s unlikely you will get any credit as your bank or building society won't be able to verify your identity.
- Pay your bills on time.
- Space out your credit applications as too many in a short space of time make you look desperate and could affect your score.
- Build yourself a good credit history. It can repair a tarnished reputation or build a brand new one if you have never had one before.
- A partner's poor rating could also affect you. If you’ve separated then write to credit agencies disassociating yourself from your ex.
- Go for stability. A home owner is better than rented property and employed is better than self-employed. Give a landline number on an application form rather than mobile. The longer you’ve been with employer or at an address the better as well.
