Switching current accounts

• So why isn’t everyone switching?
• What are the benefits of switching?
• What are the drawbacks of switching?
• What to consider when choosing your new account
• How do I switch?

So why isn’t everyone switching?

Switching current accounts hasn’t always been the easy process it is today, and customers are traditionally loyal to one account and bank for many years, if not their entire lives. However, as many current accounts offer only 0.1% interest when you’re in credit, the banks make millions from your money, and then charge a high rate of interest every time you go overdrawn on your account.

But a new breed of current accounts is emerging, offering high rates of credit interest and very attractively priced overdrafts, plus extra benefits.

Some people worry that switching their bank account will affect their credit rating, but this is an unnecessary worry as data sharing between banks is now far more sophisticated than it was. Because of this, credit rating agencies such as Experian, CallCredit and Equifax will know you’re on the electoral register and if you’ve previously held an account trouble-free with another bank for several years. All this - and more- will help your application when looking to transfer your current account to another bank.

For more information, check your credit report online.

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What are the benefits of switching?

The main benefit of switching your current account is that you may be able to get a more favourable interest rate on your balance when you’re in credit, which will actually earn you money. And you could also get an improved level of service from your new bank that was impossible to get from your old bank. While you might think that your current bank account suits your needs, before finding the right account for your financial circumstances you need to really assess the way you use it.

However, it’ll probably be your financial circumstance that chooses the account for you. For example, if you spend most of the month overdrawn, then an account with the lowest overdraft charges will take precedence over an account where the rate of interest paid on balances in credit is a high one. There are also a couple of other ways that you can make money by switching your account - some accounts actually pay you to switch, while others offer a cash reward if you successfully recommend someone to the account.

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What are the drawbacks of switching?

There is an element of hassle involved - while your standing orders and direct debits will automatically be switched to your new account, you will have to personally notify anyone who regularly pays money into your account.

It is a good idea to leave your old account open for a few months after you switch, just to be sure that nothing has been missed, and you might want to leave some money in it too, in case there is anything still to be paid out of it.

Many introductory offers also have strings attached. For example, you may need to fund your account with a certain amount each month, so you need to ensure you can meet the criteria. The interest rate may only be fixed for one year - after which it may drop significantly - so you need to keep an eye on this and be prepared to switch again.

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What to consider when choosing your new account

When you choose your current account, there are a number of things that need to be taken into consideration:

• Monthly fees - Some current accounts, known as packaged accounts, charge a monthly fee and come with added extras such as travel insurance and breakdown cover. Some of these accounts offer good value, but you need to assess whether the benefits are worth the cost by looking at which services you would actually use and how much they would save you. Find out more about packaged accounts by reading the Creditchoices.co.uk guide.
• Do you need online banking? Look at the services your internet banking will offer - some don’t allow you to manage direct debits for example. Some also offer mobile banking through your phone via text, WAP or 3G.
• Do you spend a lot of time abroad? If you use your card outside of the UK a lot, make sure that you’re aware of the charges you’ll be facing for using your card abroad.
• Will you need a branch? Some high-interest accounts are online-only, so take this into account when choosing. If you do need a branch you might also want to check where your local branch is, and its opening hours.
• Statements - Will you receive your statements monthly or will they be online only? If this matters to you, make sure you know how your account works before signing up.
• Unauthorised overdraft fees - If you spend a lot of time in the red, make sure you know what this will cost you so that any financial difficulties you might face don’t spiral out of control.

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How do I switch?

To apply for a new account you’ll need two forms of identification - one to prove who you are, such as your passport or driving licence, and a second to prove your address, such as a gas, water or electricity bill.

Once your application has been approved, your chosen bank has 10 days to open your new current account. Then your old bank has just three days to transfer all your standing order and direct debit information to your new provider. In this time your new bank will also need to supply you with a cash card, pin number and, possibly, a cheque book.

You should note however, that the companies that you’ve lodged standing orders with - like telephone line providers and utility suppliers - may take longer to transfer your information.

Now that you know what to look for, compare popular current accounts with Creditchoices.co.uk to find the best deal for you.

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