The government has struck a deal with the major high street banks that could benefit bankrupts and other people who use basic bank accounts. From September 2016, the range of services available with these accounts will become broader, so that the people using them aren’t ‘shut out’ from everyday banking facilities that most people take for granted.
Of particular benefit will be the abolition of fees for inadvertently going overdrawn or missing payments such as Direct Debits. At the moment, consumers are being charged up to £35 a time, often forcing them into unauthorised overdrafts which then attract even more fees. This can make the financial situation much worse for anyone on a fixed or tight budget – which is the case for many people who’ve declared bankruptcy.
Commenting on the changes, Chief Executive of Citizens Advice, Gillian Guy said: ‘A good bank account is essential to managing your money. Up until now, some basic bank account customers didn’t get a debit card, were afraid of being hit with fees for unpaid Direct Debits and some were shut out of banking altogether.’
Basic bank accounts explained
Basic bank accounts were introduced in 2004 to help widen access to banking services for people who are ineligible for a standard bank account. This might be due to a poor credit rating, being bankrupt or otherwise insolvent, or having a very low income.
According to the British Banking Association, there are now 9.3 million basic bank accounts in the UK and since they were introduced, the number of households without access to a bank account has fallen by over 50%.
A basic bank account must give the account holder access to a number of services, such as the ability to pay in wages, benefits, tax credits or pension payments. The account holder can pay in cheques, take money out using a cash card, make payments by Direct Debit and standing order, and withdraw money in person from their bank. Unlike some standard accounts, there is no minimum amount that must be paid into the account each month.
However, until the new changes come into force, the banks can charge consumers for some or all of these services, such as charging a fee for withdrawing cash where this service would be free for standard account holders. The major banking providers have now agreed to make basic bank accounts completely free from September 2016.
New services will also become available to bring these accounts more into line with standard bank accounts. For example, where basic bank account holders previously weren’t allowed a debit card, these will become available. Online debit card payments will also be permitted – enabling account holders to take advantage of money-saving deals that are often only available online.
Andy Gorton, Managing Director of debt advice service Bankruptcy Clinic, welcomes these changes. ‘Since 2004, the introduction of basic bank accounts has done wonders for financial inclusion in the UK. However, there were issues with the way the banks were running these accounts and how vulnerable account holders were being treated in terms of fees and access to services.’
‘One of the things people dread most about bankruptcy is being forced to close their bank account and lose access to everyday services that they’ve come to rely on. So the introduction of new, fee-free basic bank accounts that offer a wider range of services than before will be a welcome source of relief for many people who are going through a very difficult time in their lives.’
Like to know more?
You can find more information about basic bank accounts and how they work at the Money Advice Service website. You can also watch videos which show you how to open a basic bank account, make payments into it and use your account to make budgeting easier.
About Bankruptcy Clinic
Bankruptcy Clinic is a professional debt help service that provides advice, information and support on bankruptcy and other debt solutions such as Debt Management Plans, Individual Voluntary Arrangements and Debt Relief Orders. Our aim is to help you find the right answer to your individual money problems before referring you to our partner debt management firm, Money Solve Ltd, who’ll implement the solution on your behalf.
It doesn’t matter how much you owe or who to – we can help. Our friendly, fully-trained debt advisers are here to help you overcome your debts and move on with your life.
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