Nine UK banks and building societies are launching new basic bank accounts from 1 January. The accounts are aimed at individuals with low incomes and assets. They will be suitable for saving small amounts of money and for paying bills.
Account holders will not be charged fees if there is not enough money in an account to fund a direct debit or standing order payment when it falls due. However, they will not be able to run up overdrafts.
Around two million people in the UK do not have a bank account, according to the Financial Inclusion Commission. They include those on low incomes and individuals with poor credit records. Normally a qualification for a current account is the paying in of a monthly minimum amount, often between £700 - £1,000.
According to moneysavingexpert.com, "basic bank accounts are especially useful for individuals with poor credit scores, who won't pass the credit check for standard bank accounts". The only individuals excluded will be those with criminal convictions for fraud or who cannot provide proof of identity.
The new accounts are the result of negotiation between the Treasury and the banking industry. The advantages to the government are two-fold. First, it means greater social inclusion for the poor, making it easier for them to make purchases, pay bills and build savings. It will also save poor people money directly, because paying with cash is often more expensive than making electronic transfers.
Secondly, it will reduce the costs of paying pensions and other welfare benefits. This represents significant savings for the Department of Work and Pensions. The new accounts will also save their holders money, when compared to many existing basic bank accounts. The accounts will not penalise holders for failed payments, which some existing basic bank accounts do. Previously they may have paid up to £35 for a failed payment, which could sometimes also mean racking up overdraft charges.
While more limited kinds of basic accounts are currently available, banks do not publicise them very actively. This is mainly because they do not have overdraft facilities, which means banks cannot earn interest from them. "Banks don't tell you about these accounts as they don't really want people to have them," says moneysavingexpert.com.
"More people than ever before can now access banking services," said Anthony Browne, the chief executive of the British Banking Association. However, it is clear that the banks have made the new basic accounts available only as a result of government pressure rather than from any gratuitous desire for greater social inclusion.