Recent research has suggested that the British are less likely to switch their bank account than any other form of financial product, utility or insurance. It’s little wonder: for years, the major banks made switching a current account a nightmare with the customer responsible for ensuring that all standing orders and direct debits were recreated on the new account manually.
But switching account is now relatively simple thanks to rules which were introduced in 2013. These so-called seven-day switching regulations mean that banks must now transfer everything over to a new current account within a week of a customer informing them that he or she wishes to switch to a new account provider. As a result, the current account market is now extremely competitive with all of the major banks offering a host of attractive accounts with various benefits in attempts to lure customers away from their competitors.
Should you switch?
The new seven-day switching rules have been responsible for liberalising the current account market. But banks are also keen to lure new customers to their current accounts because when a new customer opens one of these, he or she often follows up the switch by taking out other financial products with their new bank.
That means that banks are prepared to run current accounts as loss leaders – giving the consumer an attractive deal and then trying to sell him or her other products like loans, credit cards or savings accounts. The deals on current accounts usually include special benefit packages like breakdown cover; mobile phone insurance and travel insurance; as well as interest paid on balances in credit, free overdrafts and zero commission on foreign transactions.
But negotiating your way through the myriad deals can be confusing, particularly when you aren’t clear about why you want to switch in the first place. For instance, while a current account which pays you interest when you are in credit might sounds attractive, it might not be such a good deal if you are permanently in the red and it comes with high overdraft fees.
For somebody who already as AA breakdown cover, rarely goes overdrawn and is interested in making as much interest as possible on their balance, a so-called ‘platinum’ account offering membership benefits and fee-free overdrafts would be a waste of time.
Are cashback offers worth it?
Many banks offer rewards – in the form of cashback – to customers who switch current account. But beware: this cashback is not always in the form of money. It might come in the shape of vouchers to spend online or with a major retailer.
And don’t be tempted to open a new account without intending to use it fully just to get your hands on free money. Most of the banks offering cashback to new account holders will insist that the new customer uses the account as their main account and that their monthly wage packet is paid directly into it. Some will also insist that the new account holder switches over at least two direct debits before giving them the cashback offer.
Vouchers or cashback may well be attractive enough for you to switch bank but make sure that you don’t have to sign an agreement committing you to paying a large annual fee or that you will face large charges should you go into the red once in a while.
How to switch you current account
More than 40 banks and building societies in the UK have signed up to the seven-day switching service. All of their offers are accessible through the currentaccountswitch.co.uk website which can also help you change your account. Most of the process is automated and will be completed within a week of your application to your new bank.
The procedure for switching account is as follows:
- When you make your application to your new provider, it will still have to run through all of its usual account-opening procedures.
- Once you’ve been approved and your new account has been opened, you will need to fill in a Current Account Switch Agreement form and a Current Account Switch Service – Account Closure
- You will be able to specify the date that you want your new account to be active and for all of your direct debits and standing orders to be paid from it. This must be at least seven working days after the account has been opened.
- Your new bank will confirm once the changeover has taken place. You should continue using your old account until you receive this confirmation.
- On the day of the changeover, your new bank will move your income and your outgoing payments over to the new account and transfer any balance from your old account. It will then close the old account.
- How to choose the best student bank account
- How mobile apps are revolutionising the way we bank
- The future of online banking security