If you're starting an IVA, one of the first practical jobs is to make sure you have the right bank account in place. In many cases you can carry on using your existing current account, but if you bank with a lender you also owe money to, it's usually wise to open a fresh, separate account before your arrangement begins. This protects your monthly payments and stops any nasty surprises.
The good news is that you don't need a fancy account with an overdraft or a credit card. A simple basic bank account will do everything an IVA needs it to do, and most high-street banks offer one.
The short answer
- You can usually keep your current account, unless you owe money to that same bank.
- A basic bank account (no overdraft, no credit) is normally the safest choice.
- Banks can use a "right of set-off" to take money from an account to cover a debt you owe them.
- Opening a new account before your IVA starts helps keep your payments running smoothly.
- You don't need a credit check to open most basic accounts.
Why you might need a different bank account
The main reason to switch is something called the right of set-off. If you have a debt with the same bank that holds your current account — say an overdraft, a loan or a credit card — that bank is allowed to move money out of your account to reduce what you owe. If your wages or benefits land in that account, you could find part of them swallowed up before you've had a chance to pay your bills.
Because an overdraft is itself a debt that can be included in your IVA, banking with a lender you're now dealing with through the arrangement can get complicated. Moving to a bank you don't owe anything to keeps things clean and simple.
What kind of account should I open?
A basic bank account is designed exactly for this situation. It lets you receive your income, set up direct debits and standing orders, and use a debit card — but it doesn't come with an overdraft or borrowing. That matters, because taking on new credit during an IVA is restricted, and an overdraft counts as credit.
What to look for
- No overdraft facility, so you can't accidentally slip into more debt.
- Direct debit and standing order support, so your IVA payment goes out on time.
- A debit card for everyday spending.
- Online and mobile banking to keep an eye on your balance.
Switching accounts safely
If you decide to move, timing is everything. Ideally you'll have your new account ready before your IVA is approved, so your first monthly payment leaves the new account without a hitch. Your monthly payment is worked out from your budget during the setup process, so it helps to understand how IVA payments are calculated before you rearrange your direct debits.
A simple order of events
- Open your new basic account.
- Move your salary or benefit payments across.
- Reset your essential direct debits — rent or mortgage, council tax, utilities.
- Set up your IVA payment from the new account once your arrangement is agreed.
- Leave the old account empty and, if it had an overdraft, let that debt be dealt with in the IVA.
Does opening an account affect my credit file?
Basic accounts generally don't need a hard credit search, so opening one shouldn't leave a mark. Your IVA itself, however, will appear on your credit file for six years and will lower your score while it runs — you can read more about that in our guide to how an IVA affects your credit rating. Later on, once the arrangement is behind you, there are plenty of practical steps you can take to rebuild your credit score after an IVA.
What if I'm self-employed?
If you run your own business you may need to keep a separate account for trading income and expenses. An IVA can often work well alongside self-employment, and we cover the details in our guide to IVAs for the self-employed. The key is keeping your business and personal money clearly separated so your income and expenditure is easy to review at your annual review.
How IVA Advice Online can help
Sorting out your banking is a small but important step, and it's one we'll talk you through as part of setting up your arrangement. If you'd like free, confidential guidance on whether an IVA is right for you — and what to do about your bank account first — get in touch with IVA Advice Online. Our advice on your options is always free, and we'll only ever mention a fee if you choose a solution that carries one. For independent money guidance you can also visit MoneyHelper.