We’re discovering that switching banks and having multiple current accounts can be useful – and make you money too
Traditionally, people had just one current account and stayed loyal to their bank for life. But times have changed, with a growing number of people holding multiple current accounts.
The State of Pay report from Vocalink (part of Mastercard) found that 40% of people had a secondary current account, with the figure rising to 48% for account holders aged between 25 and 34 years old.
Each time you open a new current account, it is recorded on your credit report. Although multiple credit checks in a short period of time may be considered a red flag by many lenders, it shouldn’t be an issue if you space out account openings and don’t apply for an overdraft on every account.
Here are seven reasons why you should get a second (or third, or fourth) current account.
1 You need a back-up plan
What would you do if there was an IT problem at your bank or your card suddenly stopped working? Bank outages are more common than you think – nearly every single UK current account provider suffered at least one major IT or security alert in the 12 months up until 30 June, 2019.
Andrew Hagger of Moneycomms says: “With the increasing number of bank and building society IT glitches and outages we’ve seen in 2019, it’s worth people thinking about how they can get hold of money if their bank account is unavailable for any length of time.
“An easily accessible ‘plan B’ will enable you to access cash and pay for goods and any bills while your main bank account is out of action.”
A spare account can also be useful if you lose your debit card or need to cancel it owing to becoming a victim of fraud.
2 A separate account for household bills
Separating money into a different account to pay bills is a top budgeting tip.
To get started, add up how much your bills come to each month and factor in any annual expenses, such as car insurance. You will arrive at a monthly figure that you will need to transfer to your ‘bills’ account each payday.
Set up direct debits so that all your bills are paid from your new current account – but don’t use it for day-to-day spending.
MoneySupermarket consumer affairs spokesperson Rachel Wait says: “Opening another account can also be an opportunity to make money. The Santander 123 Current Account, for example, allows you to earn up to 3% cashback on selected household bills paid by direct debit each month.”
Other banks that offer cashback on bills include Barclays and NatWest.
“I have an account for me and my four housemates”
Laura Taylor, 21, moved into a houseshare in Norwich for her second year studying at the University of East Anglia. She is sharing with four other students and decided to open a Monzo current account specifically for household bills. Her main student bank account is with HSBC.
She says: “We think our bills, such as gas and electricity, broadband, water and the TV licence, will come to about £175 a month. So each of my housemates has set up a direct debit for £38 a month into my Monzo account – it works out at £35 a month each but we’ve added on £3 a month to cover the variable water bill. I’ve set up a direct debit for the same amount from my HSBC account that I use for my day-to-day spending.
“All the bills are set up to be paid by direct debit from my Monzo account. It’s a good idea to separate the bills’ money so we all know what we have left to spend each month. If there’s money left in the Monzo account at the end of the year we’ll have a house night out.”
3 Get an account that helps with budgeting
For many people who are struggling with money, it is not household bills that are the problem – it is frittering money away on a day-to-day basis.
But if you monitor your everyday spending you are more likely to stay within a budget. These days there is no need to track your spending with a pen and notepad – there are several current accounts that do the work for you.
Starling Bank, Monzo, Revolut and N26 are all app-based and offer various budgeting, tracking and spending categorising tools that can help you see where your money goes.
4 A joint account with your partner
If you live with your partner, it makes sense to have a separate account for joint expenses. These are likely to include your rent or mortgage, household bills, plus money for any items you buy for your home together, such as furniture or appliances. Some couples might save for bigger expenditure, such as a wedding or holiday, in a joint account too.
Having a joint account – and having clear guidelines for how to manage it – can help prevent arguments about money for some couples.
However, if one of you has a poor credit history, it is best to keep your finances separate – because if your partner has a poor score, having a joint account can bring yours down too.
5 Savings rates can be better
It used to be considered madness to keep your savings in your current account, but the past few years have seen current accounts become a viable place to squirrel away your hard-earned cash.
“Current accounts can offer better interest rates than savings and Isas, so they can be a good home for your cash by standing in as an instant-access savings account,” says Sally Jaques, banking expert at GoCompare.
“But while in-credit interest rates on current accounts can sometimes blow savings rates out of the water, the caveat is that they’re usually only paid on relatively small balances, generally of a few thousand pounds.
“This means that if you want to use these current accounts as a home for your savings, you will have to open and maintain a few accounts.”
Nationwide’s Flex account pays 5% interest on balances up to £2,500 for the first 12 months. TSB Classic Plus pays 3% on balances up to £1,500, while the Bank of Scotland pays 1.5%.
6 Get cash for switching
It is worth opening some current accounts simply to pocket a switching incentive. Offers change all the time but it is sometimes possible to make up to £200 just by switching accounts.
HSBC is currently paying £175
if you switch to its Advance current account. Alternatively, NatWest’s Reward account offers switchers £150, and Lloyds’ Club account is offering £125.
Before you switch, make sure you understand what you need to do to receive the switching incentive. You’ll need to use the Current Account Switch Service (CASS) and typically switch at least two or three direct debits or standing orders to the new account, or commit to paying in a certain sum each month.
In most cases you will need to be a completely new customer of the bank in question in order to receive the money.
7 Get the best rates on holiday money
With most bank accounts, accessing your money abroad can generate a host of charges such as foreign transaction fees, ATM fees and an additional charge each time you use your card.
The high street banks are usually the worst for piling on extra fees when overseas. For example, the Royal Bank of Scotland charges a 2.75% transaction fee, plus a 2.75% purchase fee (minimum £1) and a 2% cash withdrawal fee (minimum £2, maximum £5).
But there are now a number of bank accounts that are free to use abroad – making the associated debit card ideal to pack when you are going away.
Ms Jaques says: “App-based banks including Monzo and Starling offer current accounts with fee-free spending and withdrawals worldwide, although there’s a cap of withdrawing £200 in any 30-day period with Monzo. After this a 3% fee applies, so this is something to look out for.
“In some cases, these current accounts may be more beneficial than paying with cash, as they don’t mark up the exchange rate, preventing you from being hit with extra charges.”
“Having two cards was essential when I became a victim of fraud on holiday”
Anastasia Balandina (right), 25, is from London and works in PR. She has
two current accounts with Barclays and First Direct.
“I do all my personal day-to-day banking out of one of the accounts and have my salary paid into it,” she says. “I use the other as a savings account, having recently switched from Nationwide. Having a First Direct current account means I can open a regular savings account with First Direct – this has a high interest rate of 5%.
“Having two accounts came in handy when
I couldn’t use my Barclays card. I was on holiday and I left my wallet in my hotel room and someone apparently took pictures of my cards.
I then noticed transactions I didn’t recognise and thought it was fraud so I decided to freeze the card. I was quite lucky that I had the other one to use for a couple of days.”
Compensation for fraud victims
I strongly object having to pay a 2.9% transaction fee to compensate fraud victims. It is our own responsibility to look after our own money and take care when being asked to transfer money to unknown persons or bank accounts.
I realise scams are getting more sophisticated but we are given sufficient warnings when making transactions from our bank accounts which we should heed. If Banks themselves are at fault, then it is their responsibility to refund victims, but if it is a banks customer’s naivety or irresponsibility, I do not see why all customers should be expected to pay.
Second bank account
Another reason is to have an account with minimal balance and use for ATMs. Should your card be cloned, or whatever, only a small amount of money is at risk;
No wonder there is so much debt about with advice like this.... do not have the stamina to give reasons. Just another attempt to put gullible people who can be persuaded to move away from the accounts they have trusted for aeons on to the sellers radar. Cynical? yes I know.