When researching my feature on current accounts this week (see page 58) I came across a frightening fact: there are still almost a million people who have absolutely no bank account at all. Bearing in mind that I'm expecting my bank to start charging me for the privilege of having an account any day, the idea may seem attractive.
But consider what life would be like if you didn't have a bank account. You wouldn't be able to pay for things by cheque or plastic, for starters. That would make life far more inconvenient. Depending on where you were going, you'd need to carry a wad of cash around with you, rather than just a few pounds and a card. Regular bills would work out more expensive as you wouldn't be able to pay by direct debit or standing order. In fact, you wouldn't even be able to take advantage of cheaper deals online, as you'd have no way of making electronic payments or simple transfers from your account.
Sure, some people prefer to be without bank accounts. They like to be paid in cash and use money to pay for things. Let's face it, it's the ultimate way to ensure you stay within your budget, being only able to spend what you have in your pocket.
But even those who think cash is king are going to find life gets more difficult in the future. It's estimated that by 2018, only 2 per cent of employees will be paid in cash. And, as we've reported in these pages before, banks and shops are speedily moving towards a cashless society, encouraging us to pay for even small purchases – such as a newspaper or chocolate bar – by flashing the plastic.
What that all means is that those without bank accounts are fast becoming a financial underclass. In fact a report published this week from Consumer Focus, the government's consumer champion, warned that banks are leaving behind the most vulnerable people and are effectively pushing those without accounts to the edges of the economy.
"Life without a bank account can cost time, money and convenience," said Mike O'Connor, chief executive of Consumer Focus. "It is another stark reminder that those with less often end up paying more." He's called on the Government – as part of its current banking reforms – to force banks to play fair with customers by making it easier for struggling families to open basic bank accounts.
These come without overdrafts, but do have a plastic card and direct debits, so people can benefit from the convenience and cheaper costs of modern banking. The British Banking Association claims that the high-street banks are opening around 35,000 basic bank accounts a month. But I know from looking around branches that they don't give them enough publicity.
The banks don't want to open them because they cost them money. In effect, because people can't borrow on basic accounts the banks can't claw back cash through high overdraft charges or penalty fees. But, for a change, it would be great if banks could take a longer-term view.
Basic bank accounts should be a first step to people getting full service accounts. Once someone has proven they can manage their finances for a year or so, then the banks should consider offering them an upgrade. Being able to get an overdraft may not seem a big deal, but for someone who may have only been able to previously borrow cash from dodgy doorstep lenders, it can offer a measure of self-respect.
Co-op leads way in good lending deal
A new scheme launched by the Co-op this week is one to be applauded. It could help tens of thousands of people escape the clutches of unscrupulous loan sharks. Co-operative Electrical has teamed up with credit unions to offer affordable loans to anyone needing to buy household appliances.
While doorstep lenders and weekly payment retailers will charge people extortionate interest of 270 per cent or more, anyone buying goods like washing machines or cookers through this new scheme will be charged just 12.7 per cent APR.
It means anyone borrowing £300 over 57 weeks through the scheme would be charged just £21 in interest. Through a loan shark it would be around £246, almost twice as much as the total borrowed.
"There is a need for an ethical and affordable alternative for purchasing goods that we most take for granted," says David Sanderson of Co-op Electrical. He's right, and I'm glad, for a change, to be able to highlight a decent loan deal rather than rip-off credit.