Can I open a new bank account if insolvent?

Summary: This article aims to address the issues that individuals may face when trying to open a new bank account when they are in financial difficulty.

With more people struggling with their finances due to an increase in living costs and a lack of a rise in salary, debt is beginning to become a common issue. While there are many debt solutions available to help individuals, such as Individual Voluntary Arrangements (IVAs) and Debt Management Plans (DMPs), being insolvent (essential expenditure is higher than income) can result in difficulties opening a new bank account.

Why may I be refused a bank account?

Individuals who find themselves insolvent may be deemed as high risk by many banks, and as a result they may not be willing to offer a standard bank account to those with a very poor credit rating.

Why would I open a new bank account if insolvent?

There could be a number of reasons, from needing a business account to having to open a new account as there is outstanding debt with an existing account. It is often suggested that if entering an IVA for example and an overdraft is to be included within the IVA, that a new account be opened with a different account to pay in income.

What account can I open?

While it is true that those in financial difficulty may experience difficulty finding a bank willing to provide a standard account, there are some that have specific products for such situations. These are often referred to as 'cash card' accounts which only provide a cash card and a lower limit to the amount of cash that can be withdrawn on a daily basis. They also do not have an overdraft facility so payments can only be made if there is cash in the account. They will usually allow standing orders and direct debits, and so can be used for any regular payments as any other account. Both Barclays and HSBC offer such accounts, with other similar offerings from the likes of The Cooperative Bank and Think Banking.

One thing that is common with these accounts is the lack of overdraft and cheque facility. It is important for individuals struggling financially not to get further into debt, and by removing such facilities, it will lower the risk.