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Basic bank accounts
What is a basic bank account?
In 2003, the government introduced basic bank accounts as a way of guaranteeing everyone could fulfil their banking needs, like paying bills or receiving their salaries.
As the name suggests, they are a fairly limited products designed to offer the basic functionality and benefits you would expect from a standard current account.
Who do basic bank accounts suit?
Basic bank accounts are available to anyone – you do not have to be on the electoral role to qualify. They suit people who cannot qualify for a standard account, perhaps because they have been bankrupt and have a bad credit score.
They are also a good starter account for anyone who has never used a current account to pay their bills before and doesn’t want the temptation of an overdraft, or who perhaps has only recently moved to the country.
Basic bank account benefits
People who can’t open a standard current account will find they can gain most of the same benefits if they apply for a basic bank account.
A basic bank account enables you to pay bills by direct debit. Paying by direct debit not only ensures your bills are paid on time, but it can also sometimes mean you qualify for a better financial deal. For example, many gas and electricity tariffs offer discounts to those who
pay by monthly direct debit.
You can also pay in your wages, benefits, tax credits and state pension to a basic bank account and you’ll receive a debit card so you can withdraw money from an ATM.
Importantly, opening a basic bank account allows you to start building a banking history so that you can eventually open a more attractive standard current account.
Basic bank account negatives
A basic bank account is more limited than an everyday current account. The key difference is that you do not get an overdraft facility, because they are usually opened by people with a low credit scores or those with no previous credit history.
On top of that, none of the most competitive current accounts are basic bank accounts. You won’t earn a high rate of interest on your money; in fact you probably won’t earn anything at all, even with the best basic bank accounts.
These basic current accounts are designed to be solely functional – to give you somewhere you can put your wages and pay your bills.
Alternatives to basic bank accounts
Could you qualify for a standard current account? These offer betters rates and include some perks. Compare basic bank accounts and standard current accounts to see the difference.
If you’re really struggling with debt then a managed account might help you rebuild your credit score, plus you’ll get help looking after your cash from a dedicated money manager. However, you will pay a fee for that kind of service.Source: www.moneysupermarket.com