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Recent studies have found that close to two million adults in Britain manage to get by with no bank account. But while living “off the financial grid” may be attractive to people who mistrust modern finance and online banking, not having a bank account could have major implications for their financial health.

Firstly, there’s the cost. Research by the Financial Inclusion Commission found that not having a bank account can cost you more than £1,300 a year more than somebody who conducts their financial affairs through a current account.

High street bank cash pointThe research found that more than half (60%) of those without a bank account used to have one but it was closed against their will because of debt issues or other problems with their bank. Once deprived of a bank account, those people then lost access to making regular direct debit payments for things such as electricity, phone or broadband charges – bills are usually subject to some form of discount should you agree to pay by direct debit.

Proportion with no Bank Account falling

While the headline figures on those without a bank account are alarming, there are some positive signs if you dig a little deeper:

  • The proportion of households on lower incomes who do not have a bank account is much lower than it was during the late 1990s when it was as high as 25%. Today, that figure is closer to 10%.
  • The proportion of households on low incomes without a bank account is now similar to that of households on average incomes.
  • The fall in the numbers of lower income families without a bank account seems to have been down to the introduction of basic bank accounts and Post Office card accounts.

The headline numbers may suggest that more than half lost their access to banking because of financial problems but other research suggests that a sizeable number of people have chosen not to have a bank account. A survey by the poverty charity, Toynbee Hall, published in the Lloyds Banking Group’s Consumer Digital Index 2017, suggested that 32% people of people without an account chose not to, 29% blamed an identification problem while 15% said that they chose not to have an account because of a prior negative experience with a bank.

Out of all those surveyed, the charity found that 31% of those without an account were between the ages of 20 and 29 while 26% were between 40 and 49.

No move to Payday Loans

While it might have been expected that those without an account would rely upon payday loans, Toynbee Hall found that only 6% of those without an account said that they regularly use payday loans. Just 1% of them said that they use payday loans every month. That may be as a result of the use of so-called continuous payment authorities which payday lenders will often insist upon before offering a loan.

How to Manage without a Bank Account

Despite most utility companies charging more if you don’t pay by direct debit, it is perfectly possible to have electricity or gas connections without an account. It just means that you will probably have to have a pre-payment meter installed.

Other bills and contracts may be more difficult. It is now virtually impossible to get a broadband contract without a bank account while getting any kind of mobile phone account on a contract will need you to provide your bank account details. If you don’t have an account but need a mobile phone, then you will probably have to get a pre-paid mobile with a sim card that you top up with cash at a shop or Post Office.

What does no Bank Account mean for your credit record?

If you want access to loans, credit cards or mortgages, then it’s a given that you will need a bank account and one which you pay a minimum amount into every month. If you don’t have one, then it will be virtually impossible to get any kind of loan – with the possible exception of a doorstep loan which you repay in cash – and your access to other forms of credit will be limited.

Some of the credit card companies do have pre-paid credit cards which you “charge up” with cash at selected outlets. These work in a similar way to standard credit cards except that you don’t have a credit limit, just a balance which must be equal to or more than what you spend on the card. Most of these cards come with fees which are taken out of your balance.

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