Switching your current account – The Moneyfacts.co.uk view
Whether you are someone who runs your current account in credit or makes regular use of an overdraft limit, Samantha Owens, Head of Personal Finance at moneyfacts.co.uk, looks at the financial benefits of switching your current account.
“Whilst switching a mortgage, credit card or savings account has become almost the norm as consumers have started to become more savvy about making the most of their money, there is a combination of reluctance and apathy when it comes to moving your current account.
Why are banks and building societies offering me an incentive to transfer my current account?
“Being the provider of your main current account is big business. Once an institution has your current account, they know much more about your financial position and see the account as a gateway to sell you other potentially lucrative pension, investment and insurance products.
Over the last year we have seen institutions offer incentives to get you to switch. Halifax was offering £100 for anyone switching to its funded account, Alliance and Leicester offers £25 to you and a friend if you recommend it and First Direct currently offers £100 if you choose its current account and £100 if you leave between six months and a year after setting the account up. The main catch with these is that these accounts are often funded, so you need to be paying between £1,000 in to the Halifax each month or £1,500 into First Direct.
So is it really worth the effort?
“Analysis from moneyfacts.co.uk has revealed that if you have a healthy balance in your account you could make over £180 in interest by switching accounts. If you have a typical current account from one of the largest five banks, you will earn a measly £1 a year on a balance of £1K. If you can fund a high credit interest paying account and maintain an average balance of £1K, you could earn a whole lot more. As shown below.
Provider |
Account Name |
Credit Interest Rate (gross/AER) |
Period of Initial Rate |
Revert rate (AER) |
Minimum Funding |
Maximum Balance at Higher Rate |
Interest in Year 1 |
Interest over 3 years |
Barclays |
Standard Bank Account |
0.1%/ 0.1% |
- |
N/A |
None |
n/a |
£1.00 |
£3.00 |
Abbey |
The Abbey C/A (Credit Option) |
7.72%/ 8.00% |
1 year |
2.50% |
£1,000 |
£1K (new accounts/ |
£80.00 |
£130.00 |
Alliance & Leicester |
Premier Direct |
6.31%/ 6.50% |
to 31.1.09 |
1% below BBR |
£500 |
£2,500 |
£65.00 |
£155.00 |
Halifax |
High Interest Current A/C |
6.00%/ 6.17% |
- |
N/A |
£1,000 |
£2,500 |
£61.70 |
£185.10 |
Coventry |
First |
5.94%/ 6.10% |
1 year |
5.25% |
£1,000 |
£250,000 |
£61.00 |
£166.00 |
Norwich & Peterborough |
Gold Current |
4.50%/ 4.59% |
- |
N/A |
£1,500 |
£5,000 |
£45.90 |
£137.70 |
Moneyfacts.co.uk 5.2.08 |
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“At the other end of the scale, even if you rely on an overdraft you could still save over £130 in charges.
Even though your overdraft is authorised, you may still be paying a higher than necessary interest rate on that debt. So if you know that you will be using an overdraft facility, why not search out the cheapest option?
Provider |
Account name |
Authorised O/D EAR |
Minimum funding |
Interest charged in yr 1 |
Barclays Bank |
Bank Account |
15.60% |
None |
£156.00 |
Halifax |
Current |
18.90% |
None |
£189.00 |
HSBC |
Bank Account |
18.80% |
None |
£188.00 |
Lloyds TSB |
Classic |
19.30% |
None |
£193.00 |
NatWest |
Current Plus |
19.99% - £1 to £999, 19.41% - £1K to £4999, 17.37% - £5K+ |
None |
£194.10 |
|
|
|
|
|
Abbey |
The Abbey C/A (Debit Option) |
(0% for switchers for 4 months) 12.90% |
£1,000 |
£86.00 |
Alliance & Leicester |
Premier Direct Current |
0.00% |
£500 |
Nil (After 1st year Max £5 per month) |
Intelligent Finance |
Current Account |
10.05% |
None |
£100.50 |
Nationwide BS |
FlexAccount |
9.90% |
None |
£99.00 |
Norwich & Peterborough BS |
Gold Current |
(0% for 6 months) 7.74% |
£1,500 |
£38.70 |
All interest calculated for switchers |
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Moneyfacts.co.uk 5.2.08 |
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But isn’t the switching process fraught with problems?
“Over the last few years, banks have competing for current account business. More recently, in their search for new business and to combat recent bad press, they have introduced switching teams, dedicated to making the transition between accounts as smooth as possible. In order to offer the consumer piece of mind, some institutions will even offer compensation if the account is not switched within the given time and also give you an overdraft limit to cover any problems that may come about.”
Make sure you understand the terms and conditions and limitations of your potential new current account.
“If you are thinking of switching to a high interest current account, it is important to understand the terms and conditions. Some will restrict the highest interest rates to one year, reverting back to a lower rate and there will also be restrictions on how much the high interest rate will be paid out on. A lot of these better accounts will also require a minimum monthly funding which is usually around £1K.
“So with banks making it easier and in a time when every penny counts, why not play the banks at their own game and switch your current account?”
Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.
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