The lists of bank and savings accounts that are available to most people are bewildering. A quick look at a comparison site like Moneynet or Moneyfacts will reveal thousands of different products. Unfortunately many of these accounts are not accessible for anyone with either a poor or even no credit history.

Research carried out for the National Consumer Council (NCC) reveals "that the poor pay more, or get less, for essential goods and services? having a bank account can be a gateway to other products and services, such as affordable credit and insurance". To help counteract this problem of financial exclusion, the government has tried to initiate the introduction of basic bank accounts for the least well off. The NCC has however warned that, "the current model of basic bank accounts, introduced by government in 2000 in an attempt to enable all low-income consumers to access banking services, is not delivering."

The new basic bank accounts were introduced as part of a wider push towards 'universal banking' and corresponded with the introduction of direct payment of social security benefits to bank accounts as well as the Post Office Card Account (POCA). The plan was that these accounts would also help their users by letting them set up direct debits to pay their utility bills, and so keep better track of their finances from week to week.

The accounts were originally designed to let people save and withdraw money, but in an effort to prevent extending any existing debts and stopping the accounts from becoming overdrawn, they don't offer cheque books, overdrafts or other credit facilities. The accounts were intended for those with no credit history who might not meet the banks' criteria for opening a standard current account. The accounts features typically include the ability for payments, for example pensions and benefits, to be credited direct to the account, withdrawals by plastic card through cash machines and the facility to pay bills by direct debit.

The problems experienced seem to be partly because the accounts do not always help those with a small weekly income to deal with the unpredictable gaps which can occur in wages, benefits or spending. Automated monthly direct debit payments for goods and services can prove of little use to many on low weekly based incomes. Those paid on a week by week basis, expressed a preference for weekly cash based, rather than monthly direct debit, budgeting options and felt that bank accounts with direct debit facilities would not provide them any advantages. By using cash instead of a bank account, they found they could juggle payments easier, and avoid punitive additional bank charges if they did not have the funds to hand, to cover an outgoing debit payment.

Another problem experienced was that the holders of these basic accounts are also liable to be those on low incomes, with low (if any) savings and are more likely to be in arrears paying their household bills than those without them. This vulnerable group are less likely than most to be able to deal with unexpected additional expenditure, such as an unforeseen bill for home repairs, but without recourse to any credit facilities, they may be forced into resorting to high interest loans to cover temporary setbacks.

The NCC found that "people on low incomes who use accounts to manage their money are more likely to be in arrears with household bills. They are also more likely to have outstanding credit commitments, partly because they have wider access to credit", than those without accounts.

The government has set a target of halving the number of households which do not have access to a bank account by 2006. The banks state that they currently face a lack of demand, however more than two million applications, in excess of the government's expected take-up, for the POCAs have been made. The banks are claiming that reaching the targets will be difficult, as they are being impeded by various barriers to opening basic bank accounts, such as the identification requirements in money laundering rules. Some of those on low incomes may not possess either a full driving license or full passport, and so find difficulties setting up new financial accounts. The banking industry has also been widely criticised for failing to actively promote basic bank accounts and, sometimes, for actually discouraging people from opening them.

The NCC proposed that basic bank accounts need to be more flexible. Suggestions to make the bank accounts meet the needs of consumers included offering weekly, rather than monthly, direct debit facilities where payments are only triggered if the money is available in the account, occasional payment holidays, and small free 'buffer zone' overdrafts.

Whether the lack of interest is due to the banks, the government, or the product itself, something needs to be done if there is to be an increase in the take-up rates. Half of those surveyed by the NCC felt they do not really need an account. An even more damning indictment of the current basic bank accounts was that a similar proportion of account holders preferred to withdraw all their income, rather than leave it in the account, and then manage it as cash. An inclusion policy may be a laudable idea, but it is no use if people do not want to be included, and it should not disadvantage those it is meant to help.

Useful Resources:

Bank and savings account comparisons - Moneynet

Basic account research - National Consumer Council

Richard lives in Edinburgh, occasionally writing for the personal finance blog Cashzilla and reciting Vogon poetry.