Remaining with the high-street institution your parents used, or the provider that handed you a student loan for takeaway kebabs, could be needlessly costing you money.
Multiple major UK banks are currently offering £200 or more in cash to persuade consumers to switch current accounts, paired with improved interest rates on savings, and moving accounts has never been simpler.
“Loyalty doesn’t pay, and firms rely on your inertia,” agrees Scott Dixon, an Edinburgh-based consumer rights champion who is known as The Complaints Resolver.
Yet as with most things, switching can come with a price. “Everybody wants a frictionless banking experience,” says Dixon.
“But you need to ask yourself – is a new bank going to make life easier for me?” If you are planning to switch banks, here is everything you ought to know before taking the plunge…
Why do people tend to feel loyal to banks?
“Often it’s not so much loyalty, but is more about ‘better the devil you know’,” says Dixon. “We all lead busy lives, and our bank account just ticks along in the background.”
Dixon is guilty of that himself. “I’ve been with HSBC since 2009 but I know my branch manager, and if anything goes wrong, I can speak to somebody and get it sorted.
“However, since Covid was treated by banks as a once-in-a lifetime-opportunity to decimate the branch network, forcing everybody to go online, it’s created a multitude of problems for many people.”
What upfront cash incentives could you get from switching?
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“The biggest benefit of switching is the cash bonus,” says Dixon. “NatWest are currently doing a £200 switch offer, but you can look for the best current deals on Uswitch or MoneySuperMarket.
“People should look at the headline perks and bonuses, and better interest rates, and cash-back and discounts, and customer service is also something to consider.”
But he warns, “It’s easy to get seduced by offers – but make sure that you read the T&Cs to see if you’re eligible before applying and having that credit search logged on your credit file. Some restrictions include things like minimum monthly credits, like your salary or £1k-1.5k a month being paid into the account.”
How easy is it to switch?
The admin involved in switching accounts has been simplified. The Current Account Switch Service (CASS) moves your money, direct debits and standing orders across and closes your old account in seven working days.
“Moving bank accounts is very easy to do now,” says Dixon. “You get in touch with your new bank and they just do everything in one go.”
Are there any drawbacks to switching too often?
If you switch bank accounts frequently, and you need to apply for a mortgage, loan or car finance, credit searches are recorded and frequent searches can work against you.
Dixon explains, “There are two types of searches – a soft search (which is what Buy Now Pay Later has been doing until recently) and hard searches for products such as mortgages and car loans.
“The problem is you don’t know which one will be carried out. I would take the view that a hard search will be carried out and if you clock up too many searches in a short period of time, it can affect your credit score.”
Some people use ‘burner accounts’ to switch regularly in order to benefit from the cash, but Dixon says, “It’s a lot of ‘faff’, and potentially could cost you time and money monitoring two different accounts with direct debits.”
What other perks might persuade someone to switch?
On top of cash bonuses, some banks offer ongoing 1-2 per cent cashback on spending or household bills, or retail vouchers.
“One of the best perks is travel insurance,” says Dixon. “But you’ve got to treat it like a proper insurance policy. When it comes to making claims on bank account travel insurance, declaring pre-existing health conditions is a big problem and consumers are coming unstuck.”
Dixon says customer service is an unspoken benefit of switching. “We’re increasingly looking for bank accounts that provide better service. Some banks are better than others – Nationwide, Monzo and First Direct are rated highly.”
What are the benefits of switching to a higher savings interest rate?
Some high street banks are also offering as much as 8 per cent on savings – but these deals are not for long-term lump sum savers. Dixon explains, “If you take out a savings account that sits side by side with the current account, that’s where you’ll find the higher savings interest rates.
“But you need to watch out for banks reducing the introductory interest rate after a length of time.”
Many also charge a monthly maintenance fee that could wipe any interest earned, and usually come with a 12-month rate cliff. They require a monthly deposit of £150-£250 and that headline interest rate is only earned on the rolling amount, so you only bag the 8% rate in the final month.
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