Which bank account do I need while I deal with my debts?

It can be a good idea to open a new bank account while you’re sorting your finances out. In this blog post we explain why you might want a new bank account, as well as how to go about choosing and opening a new account.

Why do I need to open a new account?

Dealing with your debts usually means making reduced payments to your creditors. But if you have a loan or overdraft with the bank or building society that provides your current account, they could continue to take the full payment from your account.

This may make it harder to get your other lenders to agree to reduced payments, and it might not leave you with enough money to live on. So, if you owe money to your current account provider, it’s best to get your income paid into an account with a different bank or building society that you don’t owe money to. This will keep your day-to-day finances separate from your debts.

What kind of account should I open?

Most banks and building societies offer at least three main types of accounts for individuals or couples: personal current accounts; packaged accounts; and basic bank accounts.

Current accounts

People tend to use their current account to:

• receive their wages
• pay bills by Direct Debit or standing order
• withdraw money from cash machines and pay for things, using the linked debit card
• borrow money, if the account comes with an overdraft

You’re likely to be able to access this type of account using online banking, and/or a mobile banking app.

There isn't usually a fee for a current account, but you may have to pay interest and/or charges when using the overdraft.

Packaged accounts 

These have all the same features as current accounts, but they come with certain extras, such as travel insurance or car breakdown cover, or an overdraft with a lower interest rate.

Basic bank accounts 

These offer many of the same features as a current account:

• debit card
• online and mobile banking
• Direct Debits and standing orders

But they don’t come with an overdraft and you won’t be charged any fees by the bank if a Direct Debit or standing order doesn’t go through (although the people you owe money to may charge you).

A basic bank account might be suitable for you, mainly because it doesn’t come with an overdraft. This means most banks will let you open a basic account even if your credit history is poor. And it will also help you avoid getting into further debt while you’re sorting your finances out.

Who offers basic bank accounts?

Lots of banks and building societies offer a basic bank account – and some banks are required to offer them. Which? has an up-to-date list, ranked in order of customer satisfaction, along with information on how to apply.

What do I need to open a basic bank account?

You will need a form of ID: usually a passport or a driving licence.

There's a free tool on the MoneyHelper website where you can compare bank accounts.

We hope this has been helpful to you – as ever, if you need any help, please get back in touch with us.