If you are planning to start an IVA (Individual Voluntary Arrangement) one of the first things that you are likely to need to do is open a new bank account. This is because either a debt that you owe to your current bank is going to be included in your arrangement or you know that the bank you are currently using will no longer deal with you once your IVA has started.
You should open your new account well in advance of your IVA starting so that you have time to change the details with your employer and anyone else from whom you receive money. You will also need to change all of your direct debits to ensure that your rent, mortgage and utility bills are paid on time.
Which bank should I choose when starting an IVA?
It does not really matter where you open the new bank account which you plan to use during your IVA as long as you follow some simple rules.
Firstly there are some banks which will not want to work with you if you are in an IVA. These are the HSBC banking group which includes HSBC and First Direct and Nationwide. If you open an account with any of these banks and then start an IVA it is likely that your account will be closed. As such you should avoid opening your new bank account these banks.
Secondly you must ensure that your new account is opened with a bank which is totally unrelated to any of the debts you plan to include in your IVA.
Remember that some banks own or are owned by other banks and make up what is known as a banking group. When you are choosing your new bank make sure that you pick one which is not in the same banking group as any that you owe money to as the banking set off rules can still apply across banking groups.
Table 1 below gives details of the banking groups in the UK and shows where the right of offset rule might therefore still apply between banks in the same group:
|Banking Group Name||Member Banks|
|Lloyds Banking Group||Lloyds; Halifax; Bank of Scotland (BoD); Intelligent Finance (IF)|
|RBS||RBS (Royal Bank of Scotland); NatWest|
|Santander||Santander; Alliance & Leicester|
|HSBC||HSBC; First Direct|
|Metro Bank||Metro Bank|
What type of account should I open when starting an IVA?
Having chosen the bank where you want to open a new account you will generally have the choice of opening either a standard current account or a simple bank account commonly known as a Card Cash account. The type of account you chose will depend on the state of your credit rating.
If you have a good credit rating
If you are currently up to date with all of your loan and mortgage payments and have not missed any in the past, then it is likely that you have a good credit rating. If you believe this is the case then there is nothing stopping you applying for a standard current account.
BMD Tip: With your new a current account you may be offered an overdraft facility and even a credit card. Given you are planning to start an IVA you do not have to decline these offers and they could be useful in the future. However you must be careful not to let these get out of control or it could put the success of your IVA at risk.
If you have a poor credit rating
If you have already missed payments to your debts and believe that you have a poor credit rating any application you make for a standard current account will probably be rejected. You will therefore have to open a card cash account. You will not be offered any type of credit facility with this account. Most banks offer their card cash accounts with a debit card and internet banking as standard.
The banks on the list below provide card cash accounts and should be able to help you:
Barclays – Cash card account
Co-Op – Cash Minder Account
Clydesdale – Ready cash account
Santander – Instant Plus Account
Halifax/BoS – Easy cash Account
Lloyds – Card cash account
NatWest – Step Account
RBS – Key Account
BMD Tip: The benefit of opening a card cash account from one of the high street banks as listed above is that it will be free. You do also have the option of opening a Management Bank Account. These type of accounts are generally available to anyone with a poor credit rating. However you have to pay a monthly fee to keep them open.
Should I open my new account on-line or in branch?
If you believe that you have a poor credit history and require a card cash account it is normally better to go into a bank in person and explain that you want to open a new simple bank account because you believe you have a poor credit rating. You should specifically ask for a simple card cash account with no lending facilities.
If asked you should say that you want to open that account because you are no longer happy with your present bank but you know that you have a bed credit rating. You should not mention that you plan to start an as this might jeopardise your chances of getting an account.
BMD Tip: The one exception to this is the Co-Op Cash Minder account which can be opened simply over the telephone.
When should I start using my new bank account?
Once your new bank account is open you should start to use it straight away. You should speak to your employer and give them your new bank account number so that your wages will start being paid into the new account. You should also change your bank details with any other people who pay money directly into your account such as child benefit, tax credits and any other benefit payments.
Of course you will also need to make sure that any direct debits you have set up for the living expenses payments that you must continue to pay are changed to your new account.
BMD Tip: If your employer is not be able to stop your next wage payment from being paid into your old account do not worry. Once the money is paid into your old account simply draw this out (in cash if necessary) and pay it into your new account. Do not be afraid of drawing out exactly the same amount as was paid in by your employer even if this means going into your overdraft facility.