Readers of the Zero-credit website will have spotted that we’re in favour of living your life without credit. The clue is in the name. That’s because obtaining credit can really mean, in a quirk of our wonderful English language, “getting into debt”.
The simplest way of not using credit is to always use cash – to be paid in cash and to pay with cash. No plastic, no credit agreements, no hire purchase, no loans and no “take home today and pay in 36 months’ time” deals. Sticking with cash can be a good idea as studies have shown that handling notes and coins is a much better way of keeping a grip on your spending when you can actually count how much of your hard-earned you have left.
The trouble is that life is not that simple and people who restrict themselves to cash transactions can find themselves badly disadvantaged, particularly as utility providers and retailers give the best deals to those who pay by direct debit or shop over the internet.
The answer to this problem is the very underpromoted “basic bank account”.
Most high street banks provide these accounts. They were first introduced some years ago to try to combat the problem of “financial exclusion”. This was the unpleasant fact that people who weren’t good for credit either because they were on low incomes or had a poor credit history weren’t able to take advantage of traditional banking services.
Basic bank accounts were invented as the solution. These accounts might look unappealing because they don’t offer overdrafts or cheque books or other fancy bells and whistles, but for Zero-credit fans that’s exactly what is good about them.
They provide a safe home for your money. Your money is in a secure place until you need it (much better than a tea caddy on the mantelpiece). If you lose your card it can be replaced – unlike the contents of your wallet. In the unlikely event of the bank going bust, your cash is protected by the Financial Services Compensation Scheme.
You can have your wages or benefits paid into them.
You can access your cash from any ATM (make sure you use a free one and not one that charges you to withdraw your money).
Many accounts allow you to make cash withdrawals over the counter in a bank branch or at a Post Office as well.
You can use your account to set up direct debits and take advantage of lower charges from utility companies and telecoms providers to those who pay in this way. (But you must ensure you have funds in the account or you may be charged a fee if a direct debit “bounces” and your account could be closed if you let this happen more than once.)
You can pay in cheques and accept direct transfers from other bank account holders.
You may be able to use basic bank account cards for shopping. While some basic accounts offer only cash cards for withdrawals from a cash machine, some also offer debit cards, so you can use them in shops and for buying things on the internet.
They don’t offer overdrafts so you can’t get into debt.
While the cards are not credit cards and don’t offer what is known as “Section 75 protection” meaning that in many circumstances you can get your money back if the supplier of the goods or services that you have bought doesn’t deliver, you may be able to ask for a “chargeback” and get your cash back that way – something you can’t do with a cash transaction. (Google “Section 75 Consumer Credit Act” and “chargeback” if you don’t understand these terms.)
You can get statements of how much is in your account – by post or via an ATM, depending on the account.
There’s no minimum payment needed to open an account.
The best thing about them is the accounts are free.
Compare the benefits of basic bank accounts with the much-hyped prepaid cards that are widely advertised as being suitable for people who don’t want or can’t get credit
Prepaid cards are not free. You have to pay something – an application fee, a monthly fee, a fee for topping up or withdrawal or an inactivity fee (they all have a different charging structure, and the charges can mount up).
You have no Section 75 protection as they are not credit cards.
Your money is not protected by the Financial Services Compensation Scheme if the company holding your money goes bust. You could potentially lose the lot.
You may be able to have your wages or benefits paid on to the card – but why would you want to have your wages paid to a fee-charging card when you can have a basic bank account for free?
Most people can have a basic bank account. The only people who seem to be universally excluded are people with a record of fraud or moneylaundering. Many banks won’t accept people with a history of bad debts, though most do. Most will not accept undischarged bankrupts – but one or two do, so even a catastrophic credit record doesn’t preclude you from applying for an account.
You can get more information about basic bank accounts, which banks offer them and which services they offer, here:
When you go into the bank, make sure you ask for a Basic Bank Account by name, and don’t get fobbed off with another product.
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