Martin Lewis says millions of low-income families waste money on prepaid cards
MARTIN Lewis warned families using prepaid cards that they often come with expensive and unnecessary fees.
He urged people to consider whether a basic bank account might be a cheaper way to manage daily expenses and pay bills in this week’s MoneySavingExpert newsletter.
Martin said his advice was especially aimed at low-income families who often use prepaid cards because they don’t think they can access a traditional bank account.
But they might be eligible for a basic bank account with a large bank, which is like a stripped-down checking account, and avoid paying the fees associated with many prepaid cards.
For example, you’ll pay £ 10 per month at ThinkMoney or £ 2 per month at Pockit with an additional 99p charge for using vending machines or paying bills.
He said: “Sadly there are still a million unbanked people in the UK – mostly low income. In recent years a range of easily obtainable prepaid cards have filled the void, but they can charge fees. high.
What is a basic bank account?
A basic bank account is designed for people who have experienced serious financial difficulties and who are not eligible for a standard checking account.
This could be due to county court judgments, bankruptcies, or if you haven’t built up enough credit history.
It acts like most standard accounts, so you can pay and withdraw money and set up direct debits to cover your bills.
Most importantly, you can use it to receive your salary and benefits.
Many providers will also give you a debit card to use – but with one major difference.
Because they are designed for clients who have had serious money problems in the past, most of them do not offer an overdraft facility.
It is therefore important to check your balance regularly, especially if you set up regular payments, as you might be charged extra if you miss a payment, such as to a loan provider.
“Some have deliberately chosen these accounts for their functionality, but here I am focusing on those who did because they felt they couldn’t get a free bank account.”
Martin said anyone using prepaid cards for this reason should check to see if they can open a basic bank account instead.
He added: “Do you pay the bank with Thinkmoney, Pockit, Monese, Vox Money, MoneyMona or other prepaid card accounts? If so, I’m afraid you will lose your money.”
What is the difference between a prepaid card and a basic bank account?
Basic bank accounts are designed for people who don’t have access to checking accounts, usually because they have lower incomes and have a bad credit history.
No-frills accounts work like a regular bank account where you can deposit money and pay your bills.
But unlike a normal checking account, you usually won’t have access to an overdraft, and some don’t have apps, associated savings accounts, or contactless cards, for example.
Prepaid cards, on the other hand, are typically run by tech companies and allow you to load money up and spend it on the go.
There is no credit check when you request it, and you can limit your spending to what you’ve loaded onto the card.
They are good for anyone who wants to control their spending, but they are also used by many low income people who cannot access a checking account.
One of the main differences between the two is that basic bank accounts must legally be free, while many prepaid cards have high fees.
Another difference is that basic bank accounts are heavily protected by consumer law. This means your money is safe if the business goes bankrupt (up to £ 85,000) and there are lots of rules for how the bank should treat you.
Because prepaid cards are often run by tech companies, they don’t have the same levels of protection.
How to choose a basic bank account?
If you have a decent income and a good credit rating, you are better off trying a checking account than using a basic one.
They are great for those who qualify, as they often offer perks like switch bonuses, interest on accounts payable, and expected overdrafts.
But for people who don’t have access to these accounts, a free basic account should meet their needs.
Any bank or mortgage company can offer a basic bank account, – and some will allow you to open a joint account if your partner is also eligible.
Since 2016, a law promoting financial inclusion obliges all the largest current account operators to offer one.
Here are the basic accounts of major banks:
A comparison site can help you find the best basic bank account.
It’s worth shopping around, because while there are rules that all banks must follow, some providers may offer additional features such as a contactless debit card, online banking, apps, or alerts. of expenses.
Some may even have a buffer zone that allows you to withdraw a small amount, like £ 10, even when your balance is low.
The MoneySavingExpert team recommends three top choices for the best basic account. These are:
How to apply for a basic bank account
Anyone can open a basic bank account, but you will still need to pass basic security measures to prove who you are.
The only exception is if you have a history of fraud – in which case you may still be barred from having an account.
This will usually be something like your passport or driver’s license – but bills or documents and letters regarding benefits can work.
It is best to speak to the bank in question to find out exactly what they will and will not accept.
If you are applying by phone or at a bank branch, it is important to make it very clear that you want a basic account or you will be referred to a checking account with more stringent eligibility criteria.
Martin explains in his newsletter that people are usually directed to a checking account, even though they explain that they have a bad credit history,
This means that people end up being rejected and think they are not eligible for an account with a traditional bank.
There may always be charges for using your card abroad or currency exchange charges, so check with your provider.
Halifax will pay you £ 100 to change your bank account.
Tesco Bank is testing a new prepaid debit card with perks such as additional Clubcard points.
Martin Lewis explains how couples can get up to £ 340 in free cash from banks.