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Keep getting slammed with overdraft charges or turned away from banks? The best of the basic bank accounts

Published: 03:47 EST, 7 May 2013 | Updated: 11:39 EST, 15 December 2014

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If you are running up hundreds of pounds in overdraft fees every month, the best option may be to go cold turkey and sign up to a bank account that does not allow you to get overdrawn in the first place.

Basic bank accounts, the simplest type of bank account, offer just that. While even the most basic current accounts may offer a 'no formal overdraft' option, you will probably still be allowed to go overdrawn by mistake - when you will be slapped with hefty fees.

But, as well being useful for people who don’t want an overdraft, basic bank accounts are also a good option if you have a low credit score or just want to control your spending.

Overdrawn? Basic bank account holders can avoid hefty fees

Remember, just because you don't have an overdraft doesn't mean there aren't charges.

Try to ensure you know exactly what money you have in the account and manage it carefully - and do your research to find the accounts with the lowest fees - or no fees at all.

A change of rules

The good news is there has been a push for better basic banking options from the Government, which has made a deal with leading banks to help people with a poor banking history.

From next year even more people will be able to secure basic bank account services on the same terms as other personal current accounts, including those that have been barred from mainstream banking services because of a poor credit history.

They will be able to access the entire ATM network and be able to use standard over-the-counter services at bank branches and at the Post Office.

Barclays, the Co-operative Bank, HSBC, Lloyds Banking Group, Nationwide, RBS Group (NatWest and Ulster Bank) and Santander have all committed to offer the improved accounts by the end of 2015.

The changes have been introduced as part of a crackdown on payday lenders.

But until then, there are some decent options available - if you know where to look.

A little-known secret

Banking exclusion has become a serious problem in the UK, with many unable to get accepted for a bank account because of their poor credit history.

However, because basic accounts usually cost banks money, often banks don't really encourage people to have them. In fact, unless you specifically ask for one by name, staff may not mention they are even available.

Instead you'll probably be given ordinary bank account application forms. If you are unlucky you may fail the credit check, impacting your rating even further.

More...

COULD NEW RULES HELP IMPROVE BASIC BANKING?

Insolvency law in England and Wales is to be amended, according to Business Minister Jo Swinson, 'as soon as Parliamentary time allows'.

The reason that so many banks are currently unwilling to offer even basic bank accounts to undischarged bankrupts is that - under the current law - the trustee in a bankruptcy can sometimes pursue banks for loss of money paid out from the bankrupt's account.

The change in the law will hopefully encourage more banks to offer accounts to undischarged bankrupts because it will mean that banks are protected from claims.

Mike O'Connor, of Consumer Focus, has been campaigning for better basic bank offerings.

He writes: 'Lloyds Banking Group, Barclays and The Co-operative Bank have agreed to work together on a progressive package of minimum standards for basic bank accounts and have also agreed to publish their market share data.

'We welcome the positive stance taken by these banks and are pleased to see them stepping up in the absence of agreement with other market participants.

'We believe however that the other banks need to be strongly encouraged, or ultimately required, to also play fair and meet a set of minimum standards in order to have a level playing field – and consistency across the country – on access to basic bank accounts that give consumers the basic functionality they need. To make sure all providers are pulling their weight we also want market share data published to allow proper scrutiny of provider’s performance.'

Barclays Cash Card Account

Barclays Cash Card Account is probably the most accessible basic account currently available.

What is it?

Barclays seems to be far more proactive in helping their basic bank account customers than other high street banks - and they are the ONLY bank that will accept you if you are an undischarged bankrupt, meaning you are probably within the first year of a bankruptcy order.

You can manage you account online, by phone or in branch and payments can be made by direct debit or standing order.

There is no overdraft facility (formal or informal) and no cheque book and you can withdraw up to £300 a day.

The small print

Avoid shock bills: Basic bank accounts can help you to manage your finances

An unpaid direct debit is charged at £8.

Barclays may decide to permanently cancel some, or all, of your direct debits or standing orders if you don't ensure that there is enough money in your account when they are due to be paid.

If they decide to do so, you will be informed by letter.

Co-op's Cashminder Account

Another low-cost, no fuss option is Co-operative Bank’s Cashminder Account.

What is it?

There are no charges for normal banking services, such as standing orders and statements, and cash withdrawals are free at branches and most cash machines.

Cardholders can withdraw a daily ATM maximum of £250, £50 less than the Barclays Cash Card account.

Once again there is no overdraft facility (formal or informal) or cheque book with this account.

You must be at least 16 years old to open the account, with a minimum balance of £1.

The small print

The Co-op stopping taking new applications from undischarged bankrupts in September 2012 (it will, however, still accept those who've been discharged).

Anyone else, so long as you have the required proof of address and ID, should be able to get a basic bank account.

Unpaid direct debits cost £15 - again, higher than with Barclays. However, Co-op will waiver fees for unpaid items returned to prevent your account from becoming overdrawn, providing that your account has been in credit for the previous 366 days

Cardholders experiencing financial difficulties can call Co-op on 0800 028 8696 for support.

HSBC Basic Bank Account

HSBC's Basic Bank Account offers free, no-frills banking but takes a tough stance on unpaid direct debits

What is it?

Accountholders can withdraw up to £300 from a UK ATM daily and access their money 24/7 using internet banking.

Direct debits and standing orders are free, plus you can make one-off payments to friends and family, either online or over the phone.

You can also use your debit card to withdraw local currency at cash machines worldwide - although a foreign exchange charge of 2.75 per cent of the exchange rate will apply, plus an ATM transaction fee - currently 2 per cent.

There is no transaction fee for using your debit card to pay for goods and services overseas.

The small print?

If we have the need to return three standing orders and/or direct debits within a rolling 12-month period, then HSBC might close your account. So watch out.

There is no branch counter service, so if you like to conduct your banking face-to-face, this account is probably not for you.

There is also no formal overdraft facility (formal or informal), cheque book or credit interest with the account.

WHAT ABOUT A BUDGETING ACCOUNT?

Jam jars: Budgeting accounts can be a good option for those looking to separate their cash for different uses.

Alternative current account providers Ffrees Family Finance and ThinkMoney both offer budgeting accounts aimed at those turned away by the banks because of a low credit rating.

Although not offered by banks, these accounts work in much the same way as any basic bank account. But they also come with the added benefit of built in budgeting features.

They do not offer an overdraft facility, and unlike rival basic accounts there is no charge if a payment bounces because of lack of funds in the account.

Neither provider carries out credit checks, accepting even those who have been declared bankrupt, have bad credit or CCJs as long as they can confirm their identity and address.

The main attraction of this type of account however is that they offer money-management tools that help accountholders separate their cash into different online jam jars to ring fence for different uses such as to pay bills or save for a special occasion.

Accountholdes can pay in their earnings into the account as normal or transfer funds from another account. Accounts come with a debit card and users can make payments and set up standing orders as normal. But FFrees Family Finance does not currently support direct debits.

Best budgeting account - Ffrees Family finances

ThinkMoney’s Personal Account costs a hefty £14.50 a month so banking customers may be better off taking a look at the range of cheaper accounts offered by Ffrees Family Finance.

The line up includes one free account as well as some paid-for options offering added perks. However even the most expensive of the Ffrees accounts comes in cheaper than ThinkMoney option at a lower £10 a month.

The free option from FFrees, its Family Account, carries no monthly charge, but it does charge 75p for each ATM withdrawal.

Customers can also choose between a £2.50-a-month option, a £5-a-month account and the most expensive, the Diamond Account, at £10-a-month.

On top of the budgeting feature, each account also offers cashback in the form of savings points when accountholders spend money with certain companies.

For example, those taking out an EDF energy tariff receive 30 points and purchases made at House of Fraser, Debenhams or Topman will get 3 per cent of their spending.

Each point earned is worth £1, which is then put aside in a separate savings account attached to the main account. These points can then be stored up or drawn out as cash.

Accountholders can collect points from over 1,000 Retailers. You can see all the offers available here.

The level of cashback will depend on which account customers are signed up to, with Diamond Accountholders offered a 40 per cent boost compared to the basic Ffrees Family Account.

Watch out: Ffrees Family Finances does not have a banking license and therefore your cash will not be protected under the Financial Services Compensation Scheme.

However the money in all Ffrees accounts is held by a company called Contis Financial Services Ltd which is regulated by the FCA under the EMoney Directive and offers similar protection to consumers.

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