The Basic Bank Account

Basic bank accounts offer an alternative package aimed at vulnerable consumers. Features typically include the ability for payments such as pensions and benefits to be paid in direct, withdrawals from ATMs and the facility to pay bills by standing and order and direct debt. They never include overdraft facilities and typically do not offer a cheque book.

When selecting a bank account consider how you intend to use your account as this could make the difference to you earning money or losing it. There are many factors a consumer might consider when assessing how much money they need to keep in they're account including:

Income to be paid in
Spending in an average month
The variability and predictability of the income and spending pattern (that is, the probability that spending in a month will exceed the average by a certain amount)
The availability and price of accessing money in other accounts
The availability of borrowing, and the time needed to transfer these
Attitude to debt and risk
The transparency of the costs related to an account and of the control you have over those costs.

Are you losing money by not opening a savings account?

Consider how the following will impact choosing you bank account that will hold a proportion of your cash in one account.

• What are the interest rates and are you better off actively managing a separate savings account to get better credit interest.

• What will the charges be? if you regularly use an overdraft

• What will it cost you on unauthorised charges if you go over your account.

By asking yourself these simple questions you could get your money to work harder for you and ensure overall you are getting the best service.

By opening a basic bank account where you are not paying any monthly fees and it is free to operate your account by keeping your account in credit and at the same time opening a savings account where you transfer a proportion of your funds per month to gain a better interest rate

By switching a basic bank account from one paying 0.5 per cent with an average daily credit balance over the year of £2,000 to one offering an interest rate of four per cent you could receive £80 a year in interest compared to £10 if your money stayed in your basic bank account.

Potential annual savings from switching from an account paying 0.5 per cent to an account offering various interest rates over one year (and over ten years in brackets)

Average balance over the year	Two per cent	Four per cent	Six per cent
£500	£7.50 (£75)	£17.50 (£175)	£27.50 (£275)
£1,000	£15.00 (£150)	£35.00 (£350)	£55.00 (£550)
£1,500	£22.50 (£225)	£52.50 (£525)	£82.50 (£825)
£2,000	£30.00 (£300)	£70.00 (£700)	£110.00 (£1100)

This may not sound a lot but based on the average customer who keeps a bank account for 10 years this then adds up to £800 and that's not taking in to consideration you saving for a rainy day.

So whets in the small print for basic bank accounts?

The account may be closed if a direct debit is refused three times.
16 and 17 year-olds can open a similar account.
Bank may cancel standing orders or direct debits if the customer doesn't have enough money in their account to pay using these facilities if this is a continuous occurrence.
Banks make their money on basic bank accounts based on net interest income and insufficient funds charges.
How much is your bank charging for insufficient funds in your account