Check before you switch: changing current account for cash could be more expensive in the long run

15 January 2019

While lots of people at this time of year are enticed to switch banks by the upfront gifts or cash on offer, they need to look at the long-term benefits.

January is a popular time for banks to launch free cash incentives to attract new customers.

Many big banks have relaunched cash-for-switching offers. First Direct, for example, recently resurrected its cash offer after having run alternative rewards such as electronics and holiday vouchers in 2018. 

However, while these offers may prove to be appealing, financial data website Moneyfacts warns that they can work out more expensive for customers in the long run if they are not careful.

Rachel Springall, finance expert at Moneyfacts, says: “While any free cash perk is tempting, customers looking to move their current account must be sure that a short-term financial incentive isn’t the sole reason for leaving their current provider.

"The account may be more expensive for dipping into an overdraft or it may not pay any credit interest for example.”

Best current account switching rewards

Open a new account with First Direct and move your current account over to earn a £100 switching bonus. If you do it through MoneySuperMarket you will see your bonus boosted with an extra £25.

The bonus will be paid into your account 28 days after opening it.

With the HSBC Advance Bank Account you will get a hefty £150 for switching. You will have to pay in £1,750 each month though.

Halifax will pay anyone who switches to its current account a £50 bonus, plus £85 if you stay for six months and pay in £1,500 a month. You'll also get a £2 reward each month you pay in £750 or more, pay out at least 2 different direct debits and stay in credit.

M&S Bank is offering a £100 M&S gift card plus an additional £80 after 12 months if you choose to switch. The deal is also available on the £10-a-month M&S Bank Premium Current Account.

With NatWest’s Reward account you get a £150 bonus. There is also 1% cashback on household bills paid by direct debit such as council tax, water and electricity. You will have to pay in £1,500 a month and it comes with a £2 fee.

Better rates

Free cash is not the only reason bank customers have for switching. Customer service, account access and a better rates are also factors.

Over five million switches having been made since the Current Account Switch Service (CASS) launched in 2013.

The most recent CASS figures show that Nationwide Building Society recorded a net gain of over 34,000 full account switches, covering the period 1 July 2018 to 30 September 2018.

By contrast, TSB made a net loss of almost 17,000 customers following an IT disaster that saw millions of customers fail to access their accounts.

Challenger banks like Starling Bank are also gaining new customers with straightforward fuss-free alternatives to traditional banking.

The best high interest current account is the Nationwide FlexDirect, which pays 5% interest on balances up to £2,500 for the first year, but this then drops to 1%. There are no monthly fees, but you have to pay in a minimum of £1,000 a month.

The TSB Classic Plus pays 5% interest on balances up to £1,500, provided you pay in £500 a month.

Another option is the Tesco Bank Current Account which has an interest rate of 3% on balances up to £3,000, but you must pay in at least £750 a month.

The Santander 123 Current Account pays 1.5% and you can also earn cashback. However, it comes with a monthly fee of £5 and you have to pay at least £500 a month.

Ms Springall says: “Not only do providers offer financial incentives to attract customers, but accounts such as with Santander’s 123 Current Account, pay monthly interest and cashback on spending for a £5 per month fee.

“Whether customers are able to benefit from these types of incentives will depend on their day-to-day spending, so it would be wise to consider how an account is used and whether this type of perk best suits their individual needs.”

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