This quick guide to basic banking aims to answer any questions you may have about lesser-known accounts, which are great for people with low credit scores, or those in debt that are trying to organise their money and get back on track.
What is a basic bank account?
A basic bank account is a no-frills current account. They don’t include perks found in other current accounts such as overdrafts and high interest rates. They are often under-publicized, because they cost banks money to run them. Most banks will not even offer you one until you ask for a basic bank account directly.
Who are basic bank accounts suitable for?
The minimum requirements for opening these accounts are low, making them a good choice for those with poor credit scores. If you fail the usual credit checks needed to open a normal current account, then a basic account would be your next option.
What are the advantages of basic bank accounts?
You can have your salary or other income paid directly into your account, and set up standing orders and direct debits to pay off your bills. There is also no danger of becoming overdrawn, as there is no overdraft limit.
What are the disadvantages of basic bank accounts?
Not having an overdraft limit means that you can’t immediately borrow money in an emergency. It also means any direct debits that go over the balance of your account will simply not be paid and the bank may even shut down your account and charge a fee.
What is a prepaid card?
Prepaid credit cards are available with some basic bank accounts. These are great for managing your money, as the “credit” is your own existing finances, meaning that you don’t accumulate any debt. The money on the card is yours to spend and the remainder of your money is kept in your basic bank account to pay your fixed monthly outgoings.
Basic banking is a fantastic option for those wanting to avoid debt accumulation that can occur as a result of using credit cards and loans. Used carefully these accounts can help individuals to organize their money to get their credit scores back on track.