If you want to open a normal current account, most banks will run a credit check before they accept your application. This is because they use it to asses you as a customer to make sure they're happy to allow you an overdraft, as that would mean lending you money.
If you've previously been declared bankrupt, defaulted on a payment or had a CCJ taken out against you, the bank may turn you down, even if you've applied for an account without an overdraft. To make things worse, applying for too much credit can further impair your credit rating.
But you'll still want to pay your bills and have somewhere to deposit your earnings - and this is where basic bank accounts come in. Who is a pay as you go account for?
Pay as you go accounts are generally available to anyone resident in the UK who hasn't been convicted of fraud.
As well as people who have struggled to open normal current accounts, they can be useful for anyone who wants to very carefully manage their money without the danger of slipping into an overdraft.
What do prepaid bank accounts offer?
As well as letting you pay in any income you earn, they usually allow direct debits and standing orders. Paying your bills this way can be cheaper than paying them on demand and also makes it less likely you'll miss paying it on time.
Prepaid bank account cards
Paying by card is quick and convenient, plus it also stops you from having to carry around large quantities of cash. But cards often don't help you keep track of how much money you have left, making the temptation to overspend much higher.
Some basic accounts will provide a debit card, but they'll often just offer an ATM card, allowing you to withdraw your money from a cash machine.
A good middle ground is the prepaid card. These work similarly to debit cards, but you have to add funds to them before you can spend. You can pay money on by bank transfer or at Post Offices; alternatively, the card can be linked to your pre paid bank account, allowing you to transfer money between the two using online banking.
You can't spend on the card once the funds you've loaded onto it run out - you'll need to add more money first. Although this might sound inconvenient, when coupled with a current account that doesn't allow overdrafts, it can help you to budget your spending to keep it within pre-planned limits.
Advantages of a prepaid current account
As well as not requiring a credit check, a prepaid account has other pros too:
Improving your credit rating
Some providers give you the option to improve your credit rating, which will happen after a while if you regularly pay their monthly fee for the account. This means you can work towards repairing your credit enough to open a normal bank account.
You can't get into debt
If you're keen to avoid owing money to your bank, prepaid cards mostly don't offer any kind of overdraft beyond a small buffer of a few pounds.
Some banks offer cashback on purchases with specific retailers with their current accounts, and this can be the case with prepaid accounts too. It's a nice bonus but shouldn't be your main consideration ahead of the account's fees and functionality.
Prepaid Cards for teenagers
Sometimes you will be able to get an additional card for a child over thirteen to use too. This can be especially useful if they're travelling or away at university and you want them to have access to emergency funds.
Disadvantages of prepaid accounts
Low interest rates
Very few basic bank accounts pay any interest at all, so if you expect to build up a big enough balance for this to make much difference, it might be worth going with a savings account instead.
With a credit card, any purchases you make are protected by the Consumer Credit Act. Some prepaid cards do offer a limited level of purchase protection, but many don't provide this at all.
Also, some prepaid cards aren't linked to a bank account that falls under the protection of the Financial Services Compensation Scheme, designed to help if your bank goes out of business so make sure to check for this before you apply.
If you had £19 on your card, you wouldn't be able to buy an item that cost £20 until you added more funds onto it.
Occasionally you might use a debit card for a transaction that is "pre-authorised" before the full payment is made, like when you hand over your card when checking into a hotel. Prepaid cards can't be used in this way.
Fees on prepaid accounts
Prepaid accounts will often charge fees, depending on how you use the account. These can include charges for some of the following:
Any card transactions
Direct debits and standing orders
Using the card abroad
Loading money onto the card
A fee to open the account in the first place
Unauthorised transactions will also usually cost you. This can include if you try to pay for something on a debit card or a company request a direct debit, but you don't have funds to cover paying it.
Some also charge a monthly fee for keeping the account open. Although it may be tempting to disregard these, the accounts that don't charge a monthly fee will sometimes charge much more harshly for unauthorised transactions, so are worth avoiding unless you intend to run your account very carefully.
Compare prepaid bank accounts
The best way to find the right account is by using our pay as you go bank account comparison, which also includes the online providers, who tend to go to greater lengths to offer accounts that don't rely on credit checks.
Although a lot of banks offer basic accounts, they don't promote them very actively, as they tend to cost them a fair amount to run. If you can't find the details, ask the banks, but make sure you specify that you want an account that doesn't require a credit check.
The right one for you will depend on what account facilities you need and what fees you're comfortable with. Extras like cashback are nice too, but picking an account that will help you organise your finances and get your credit score back up should be your priority.