10. Switching your bank account:
If you are in debt to a bank or building society and have an account with them that your income is paid into, you should consider opening a new account with a lender you don’t owe money to. Your lender has the ‘right to offset’ and you should take action to prevent this from happening in order to protect the money you’ll need for your everyday living costs.
What is the right to offset?
If you owe money to a lender that you bank with (for example, an overdraft), they have the right to remove money from your account in order to pay off the debts you owe them. This is the ‘right to offset’. Therefore, it’s important that you immediately protect your finances by moving them to an account with a bank or building society that you don’t owe money to, so your money is safe.
How to switch your bank account
To switch your bank account before your lender authorises the right to offset, follow these steps:
- Open a new ‘safe’ account with a bank or building society you don’t currently owe money to. This just needs to be a basic instant access account where you can withdraw cash from and pay in wages and/or benefits.
- Move your money across to the new instant access account.
- Arrange for your wages and/or benefits to be paid into this new account.
If you owe money to one bank that sits under a holding group, you will want to avoid opening a new account under the same group as they could also remove money from you. You can find a list of linked banks and creditors here.
Please bear in mind that although you are moving money from one account to another, you will still be liable for the account with debts attached to it and this will still need to be paid off either through a debt solution or by including it in a repayment arrangement with your lenders.
Opening a new account
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.
Once you switch, 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 and conditions of any switching service you are planning to use to ensure it won’t cause you any financial loss.
When you open a bank account, you may be asked to provide identification to prove who you are. You may be asked for:
- A driving licence
- A passport
- A tax notification letter from HMRC
- A letter with confirmation of benefit entitlement
Please ensure you have originals of these ready for when you go to open a new account, to speed up the process. It can take at least a few days to open a new account, so act as quickly as possible.
You will also want to ensure you direct any payments owed towards your new account. These can include:
- Wages
- Benefits
- Tax credits
- Investment income/dividends
To ensure these reach your new ‘safe’ account, you will need to speak to the organisations who provide you with your regular income (like an employer) to ensure you are covered for the next payment date.
What do I do after switching my bank account?
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. You must be aware that as you are not meeting the terms of your overdraft, the creditor concerned will be able to begin collections procedures.
After you have opened a new account and moved your savings across, you should contact the lender you are in arrears with and seek a payment break or discuss a repayment arrangement.