A war has broken out on the high street and banks are fighting it out in a bid to offer you higher rates of interest and new, shiny extras that will tempt you away from their competitors.
Switching your current account has never been easier - you simply open your new account and your old bank will transfer the details of all your direct debits and standing orders, and if you choose the right account, you’ll end up making your self money as well as getting an improved service.
So why isn’t everyone switching?
Switching your account 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, while many current accounts offer only 0.1 per cent interest when you’re in credit, they make millions from your money, and charge a high rate of interest every time you go overdrawn on your account.
But a new breed of current accounts is emerging - with the current best-buy from the Abbey offering a whopping eight per cent on in-credit balances, while the Halifax customers can get up to £100 a year back from the Halifax Moneyback current account.
Some people are also worried that switching their bank account will affect their credit rating but data sharing between banks is now far more sophisticated than it was and companies like Experian, CallCredit and Equifax, who help banks reach their credit decisions, will know if you’re on the electoral register and if you’ve previously held an account with another bank for several years - both of which will help your application. However, they will also know if you’ve racked up a bad credit history or repeatedly apply for credit - two things that won’t help you switch.
What are the benefits of switching?
The main benefit is that you’ll get a far more favourable interest rate, which will actually earn you money, and you could also get yourself an improved service from your bank. While you might think that your current bank account suits your needs, you need to really assess the way you use it before finding the right account for you.
Whether or not you spend a lot of time in your overdraft will influence your decision, as will the amount of interest paid on in-credit balances if you’re a disciplined saver who is never overdrawn.
There are also a couple of other ways that you can make money by switching your account; some accounts, like the Halifax Moneyback current account will essentially pay you to switch, while others offer a cash reward for you and a friend if you successfully recommend someone to the account.
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 for that time too, in case there is anything still to be paid out of it, though this shouldn’t be the case.
Many introductory offers also have strings attached. For example, the Abbey offer of eight per cent is only on in-credit balances of up to £2,500 and only for a year, though after this there is nothing to stop you from switching to another account and another introductory offer. These promotions can also turn out to be expensive if you spend a lot of time wallowing in your overdraft.
Among others, the Abbey account also has a minimum payment clause. This means that you have to pay in a certain amount each month to get your high rate of interest. This amount doesn’t have to stay in the account; it just has to be paid in at some point so for most people this comes from their wages. If however, you’re on a low wage, or don’t have that much coming into your account each month, these accounts will be worthless to you.
What to consider when choosing your new account
There are a number of things that need to be taken into consideration when you choose your current account:
Monthly fees - Some current accounts, such as the Natwest Advantage Gold, charges £12 a month for free extras such as travel insurance and commission-free foreign currency, but these are rarely used and not really worth the £144 a year you’ll be paying for them. This account is popular but pays only 0.25 per cent interest so it will cost you rather than make you money.
Do you need online banking? Look at the services your online 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 of the higher-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, 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.
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 and utility suppliers - may take longer to transfer your information.
Now that you know what to look for in a current account, check out our current Best buy table to switch.
