Can’t get a bank account? Here’s what to do
Its research says 12% of people have been turned down for basic banking services in the past two years, denying them access to current accounts, direct debits, and online shopping.
If you can’t get a bank account, you’ll pay more as you won’t be able to get cheaper prices when shopping online or paying utility bills by direct debit.
It can also make getting a job more difficult as the vast majority of employees are paid into their bank account, though the Office for National Statistics estimates 1.2 million people are still paid cash in hand.
Virraj Jatania, chief executive of Pockit says: “Traditional banks are clearly not serving customers well enough when as many as one in eight have been turned down for basic banking services.
“These are not credit applications where you might expect a higher rate of rejection but access to everyday services such as debit cards and online banking which make relatively simple transactions and savings difficult to achieve.”
I’ve been denied a bank account – what can I do?
Services for people who can’t get traditional bank accounts have improved substantially in the last few years.
Many challenger banks like Pockit, iCount, and Secure Trust Bank offer pre-paid debit cards, which work like a pay as you go phone. They’ll only let you spend money that’s been loaded onto the card, which should stop you running up a debt.
These cards will give you access to most of the services available from a bank account. They will let you set up direct debits, shop online and receive payments.
However, it’s crucial to understand these are pre-paid cards, and not bank accounts. Should the company go bust, your money won’t be guaranteed by the Financial Services Compensation Scheme.
That’s not to say there’s no protection at all. Money is usually held by a third party (Barclays, in Pockit’s case), so if the pre-paid provider goes bust, customer’s money should be retrievable in theory, though in practice it could be a pain.
And despite being targeted at people in financial difficulty, many of them are very expensive. Secure Trust Bank and iCount have monthly fees of £12.50 and £9.95 respectively.
Pockit doesn’t charge a monthly fee, but users pay 99p per cash withdrawal. The card costs 99p to buy, and there’s also a 99p charge if people load the card via PayPoint.
These costs are far less than someone would pay in fees and interest if they’re struggling to climb out of an overdraft, but it’s possible to cut the cost of banking even further with a basic bank account.
Basic bank accounts are offered by all the main high street banks, including Santander, Halifax, HSBC, Lloyds, Metro Bank, Nationwide, NatWest, Santander and TSB.
These stripped back accounts are completely free, but only available to people in financial distress.
Most of the time that means you’ll qualify for a basic bank account only if you don’t qualify for a regular current account, so you can’t get one just because they look like a good deal. And if your situation improves, so you’re no longer deemed in financial distress, the bank is entitled to switch you to a standard account, which might include fees and or charges.
The reason for this is simple. Basic accounts are far less profitable for the banks, as they don’t bring in any late fees or interest from overdrafts, though they don’t pay interest on savings either.
To qualify for a basic bank account, you’ll need to have proof of identity and proof of address. Mr Jatania says it can be easier to get a pre-paid card than a basic bank account, as they have a restricted account for people with limited documentation, which limits them to depositing £800 per month and £2,000 a year.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.