Bank Accounts and Your IVA, Question by Question
When to switch, how to avoid set-off, and what account to use.
Can I keep my current bank account during an IVA?
It depends on whether you owe that bank money. If your bank account is with a bank or building society you do not owe anything to, you can usually carry on using it as normal, an IVA does not close your account by itself. The complication arises only if you owe that bank money, for example through an overdraft, loan or credit card, in which case it is safer to switch.
What is the 'right of set-off'?
It is a bank's right to take your money to cover a debt you owe them. If you owe your bank money and keep your account there, once your IVA starts they can move funds from your account to offset that debt, without asking you first. This is called the right of set-off. It could leave you short for rent, bills or essentials, which is why it matters so much.
So when should I open a new account?
Before your IVA starts, if you owe your current bank money. The safe approach is to open a new account with a bank you do not owe anything to, and switch your income and bills across before the arrangement begins. That way your money is protected from set-off from day one. If you do not owe your current bank, you can usually stay put, though it is still worth checking.
What about banks in the same group?
They count as the same bank for set-off. Set-off can apply across banks within the same banking group, so a new account is only safe if it is genuinely unrelated to any bank you owe. Several familiar high-street names sit within larger groups. A good adviser can tell you which banks are linked, so you choose one with no connection to your debts.
What kind of account should I open?
Usually a basic bank account. Basic accounts are designed for people with poor credit and come without an overdraft or credit features, which makes them ideal in an IVA. You still get a debit card, online and mobile banking, and direct debits and standing orders. Opening one normally involves only a soft credit check, and having an IVA does not stop you getting one.
Will I lose my overdraft?
Yes, typically. An overdraft is a form of borrowing, so if it is with a bank you owe money to it will usually be included in your IVA, and a basic account will not offer a new one. Living without an overdraft is part of the budgeting an IVA involves. It can take adjustment, but it also removes a source of the borrowing that contributed to the debt in the first place.
Could my bank close my account?
Some might, so it is worth checking. A few banks choose to close or restrict accounts when someone enters an IVA, even where no money is owed to them, while others are perfectly happy to continue. If you want to keep your existing account, it is sensible to check that bank's stance first. Either way, you can always open a basic account elsewhere if needed.
Do I need a bank account at all in an IVA?
Yes, very much so. You need an account for your wages or benefits to be paid into, to pay your household bills, and to make your monthly IVA payment, usually by standing order. So this is not about going without an account, but about making sure the account you use is safe from set-off and suited to managing your budget during the arrangement.
Should I get advice?
Yes, ideally before the IVA begins. A free, impartial adviser, or your IVA provider, can tell you whether you need to switch, which banks are safe to use, and help you set things up in good time. Getting your banking right from the start avoids the nasty surprise of set-off and keeps your essential money protected. It costs nothing to sort out properly.
