Denied a Bank Account
Having a bank account has become a modern necessity in the UK. Without a bank account most people would struggle to receive money on a regular basis, save money in a secure way and pay everyday bills efficiently. Furthermore, not having a bank account can actually penalise you financially as some companies (particularly utilities companies) will offer cost incentives for payment by Direct Debit – something that would not be possible without a bank account.
We take having a bank account for granted, but obtaining one isn’t always as straightforward as you might think. There are a number of reasons why a bank or building society may decline your application to open a bank account outright, or alternatively they may offer a very basic bank account with few benefits.
Different types of bank accounts
When setting out to open a bank account there are a variety of different types of bank account that are available. They include:
The current account offered by a bank or building society is an everyday account that can help you manage your finances on a day to day basis. You will be able to use it to pay bills, receive money, withdraw money, setup standing orders and the like and save money if you so choose.
Typically you can request an overdraft and you will usually receive a cheque book and debit card to pay for items and withdraw money from ATM’s.
Post Office card account
A Post Office card account can be used to receive state benefits, tax credits and pensions but you can’t add money. Funds can only be withdrawn directly from the Post Office.
A savings account can be taken out at a bank or building society (or online) and it will offer you the facility to deposit funds in order to save for the future. Typically a dedicated savings account will offer you the best rate of interest of any bank account.
A joint account is a bank account that can be shared with a designated person. This can be useful to manage household bills and is common between partners or people you live with.
Basic bank account
A basic bank account is the type of account that you will be offered if you have had past financial problems and your credit rating is poor.
It can be considered in some ways as a scaled down “current account” in that you will not usually be able to apply for an overdraft (or it will be a token £10), so if for example you had a stranding order set up and there wasn’t the funds in the account to cover the standing order amount the standing order would fail and you could be charged an admin fee such as a “returned payment” fee.
Most basic bank accounts do not include a cheque book and some don’t include debit cards. Instead they will include a cash card which can be used to withdraw cash from a cashpoint.
Although there are limitations to having a basic bank account, they still allow you to have wages/benefits paid directly into the bank and you can make payments by direct debits, etc.
Reasons for being denied a bank account
There are a variety of reasons why you could be denied a bank account. If you have been denied a standard current account it is possible that you could apply for a basic bank account until you rectify your credit rating, but the following are established reasons why a person might struggle to get the bank account of their choice.
- Poor credit rating or lack of credit history – Both reasons can be equally damaging when applying for a bank or building society account. The good news is that there are practical steps that when taken can usually help to build up a person’s credit rating. See the denied credit section for more details.
- Unemployment of low salary – Some of the premium current accounts stipulate that an applicant must have a certain minimum amount of money deposited into the account each month – usually a salary. If an applicant is unemployed or on a low wage it can be difficult to meet the requirements and as a consequence the account eligibility might not be met.
- Age – Some bank accounts are geared towards a certain age group. If you are not in the required age group your bank account application will be denied.
- ID – To setup a bank account you will need a standard set of ID. If you are unable to prove that you are who you say you are the bank will not setup a bank account for you. As a rule, the ID the bank will require will be the full name of the applicant along with the date of birth, address and two separate forms of identification which are normally a passport with a utility bill (one that has a photo ID to display that you are the same person as the applicant, and one that has current name and address details for you).
- Undischarged bankruptcy – Until the bankruptcy has been cleared, this can make getting a standard current account very difficult.
*Note – If you have a current account with an overdraft that is being used and you are accepted for a basic account at the same bank it is possible that the bank could use the money in the new basic bank account to pay off the overdraft in the old current account so in these instances it could be worth looking at getting a basic account at a different bank or building society.
What if I can’t get a bank account at all?
If you are unable to obtain a bank account, an option that works in a similar way to that of a bank account is a pre-paid card.
A pre-paid card is a payment card that you top up with your own money. It differs from a credit card in that you are unable to obtain credit from a pre-paid card. All the money on the card is from your own top ups.
There are no credit checks involved in obtaining a pre-paid card and money can be topped up at a bank, over the Internet and it is usually possible to have wages credited onto pre-paid cards so they can be used for living expenses and to pay day to day bills.
Pre-paid card can be a way of helping towards fixing a bad credit rating when used responsibly but there are drawback that need to be evaluated. The main drawback to pre-paid cards is that you will usually be charged for each time the card is topped up and each time you spend using it so it is important to make a decision on how the card is to be used and which pre-paid card is the best on the market for your individual needs.