How to open a new bank account

If you have a debt with the bank where your income is paid into, you need to be aware that the bank could exercise the Right to Offset – this gives them the power to remove money from your account to repay a debt you owe to them.

If you are struggling with debt and owe money to your bank, you should talk to them about your money worries. Should you need to immediately protect your income, you could consider opening a new bank account online (or pop in-branch) and instruct your employer to direct your savings here. Your income will be secure in the meantime, but your initial bank account debt won’t simply go away and will need to be addressed at some point.

If you are looking for a new account, an Instant Access account may be ideal as it doesn’t require a credit check due to there being no credit facilities, cheque book, or overdraft facilities available. You will be able to have monies paid into the account, but it only allows you to withdraw money that is in the account.

Some accounts offer Standing Orders and Direct Debits to allow you to set up payments for essential things like mortgage/rent, utilities, car insurance etc. You may also get a debit card or a cash card, but remember they will only work providing you have the funds in the account.

Consider all forms of income which are normally paid into your bank account:

• Wages
• DWP benefits
• Tax Credits
• Investment income etc.

Some employers need a minimum notice period to pay wages into a new bank account, so speak to your payroll department to check how much notice they need. Some benefits may not be paid into the new account for a month, so check with the Department for Work and Pensions, Local Authority or HMRC to find out what your position is.

Switching Service

Many banks offer a switching service, which is essentially a facility that allows you to switch your account from your old bank to your new one in seven days. You can check which banks offer this service on the Current Account Switch Service (CASS) website.

A switching service is mainly automated and will move existing direct debits across to your new account. Any outstanding debts with your existing bank account will remain, and you’ll have to arrange the payment of these with your creditors. Always read the terms & conditions of any switching service you are planning to use to ensure it won’t cause you any financial loss.

Can I close my old bank account if I am overdrawn?

Once you find a new bank, which has no connection to any of the creditors you owe to, you will need to transfer across the essential payments as mentioned before. If you have an overdraft with your old bank, you won’t be able to close the account. However, you can include the old overdraft in any repayment solution, along with any other unsecured creditors.

When is the best time to change banks?

If you make the decision to change banks, it is recommended that you do this as soon as possible and have your income paid into it. If your bank were to exercise the Right to Offset, they could freeze your bank account and take any money in it to repay monies owed to them, so doing this quickly will minimise the risk to your future earnings.

What is the First right of appropriation?

If the bank has frozen your account and you are due to pay an essential cost such as your mortgage/rent, utility or if you need money to buy food, you can ask your bank to exercise the First Right of Appropriation. This allows you to dictate to the bank how money credited to your account is used. This means that if you know that there’s a risk of the bank freezing your account, you’ll be able to tell them that you need money to pay for priorities (gas, electric, mortgage etc.) first.

If you’d like further help or need to talk to someone about debt, please contact our Advice Team on 0800 316 1833.