How switching bank accounts can help your finances
Stop bitching, start switching
This is the perfect time to grab £150 of free cash in time for Christmas and improve your finances at the same time. The bank account switching market is red hot with many banks willing to pay for your custom – and you should get the money in time to boost your Christmas kitty.
Q. You’re talking about switching, but isn’t it too much of a hassle?
Martin’s A: No. Much of that is a legacy opinion from a few years ago. It’s the second birthday of what’s called ‘seven-day switching’, and that’s made the process easier. When you apply for a new bank account, assuming you’re accepted, three things happen within the seven working days:
All standing orders and direct debits are moved for you
Your old account is closed
All payments to your old account are auto-forwarded for three years
This process seems to have made things much easier – I did a poll of 100s of people on my Facebook page and 82% said they found it 'easy and hassle-free', while only 4% had experienced problems.
Yet still far too few people try it – last year only 2% changed bank accounts – strange as my mailbag is full of people complaining about their banks. So my solution is don’t bitch, switch.
Q. OK, so it’s easy, but what’s this about free money.
Martin’s A: Many of the challenger banks (those who want to break the dominance of the old ones) want you to switch to them so much they’re willing to pay you to do it. For a full rundown and eligibility criteria seeMartin’s ‘Top Bank Accounts’ guide. But in brief, here’s the current top picks…
- Clydesdale free £150, cash comes within 70 days of switching and paying in £1,000Other benefits: pays 2% AER interest on the first £3,000
- First Direct free £125 (or more via some websites) cash comes within 28 days of switching and paying in £1,000Other benefits: Number 1 for customer service, linked 6% regular saver, 0% overdraft up to £250
- Halifax Reward free £125, within three working days of switchingOther benefits: Pays £5 each month you’re in credit
- M&S Bank, free £100 M&S gift card (or more via some websites), within a month of switchingOther benefits: No minimum pay in each month, linked 6% regular saver, 0% overdraft up to £100
Q. Can anyone get these?
Martin’s A: You’ll be credit scored to get these. Though most people who have an existing bank account (unless it’s a basic account) should be fine. Yet to get the bonuses you normally need to use its switching service, have a couple of direct debits or standing orders set up, plus meet the minimum pay in requirement (effectively a way of requiring you to earn a set amount. Of the accounts above only First Direct and Clydesdale require you to pay a monthly minimum, equivalent of £13,200 a year).
Q. Aren’t there also accounts that pay high interest on your savings?
Martin’s A: Yes that’s another form of competition, and if you have higher savings that is likely to be more lucrative in the long run than grabbing the switchers bonuses.
The big one is the Santander 123 account – it pays up to 3% cashback on certain household bills and up to 3% AER interest if you have between £3,000 - £20,000 in it. Its £24 a year fee is rising to £60 in January, so it’s only worth doing if you have more than about £8,500 of savings or you are earning a decent whack of cashback.
If you’ve less, Club Lloyds pays 4% AER interest if you’ve £4,000 to £5,000 in it and both TSB and Nationwide pay 5%, but only on up to £2,000 with TSB and £2,500 with Nationwide for the first year.
Q. Once I’ve switched and got the free bonus can I switch again to another bank account?
Martin’s A: Yes, there’s nothing stopping you continually switching. But remember, you’ll be credit scored every time you open a bank account, so try to minimise opening too many accounts in a short space of time, especially if you’re going to be applying for credit in the near future like a mortgage.