With so many different options to choose from, there is no shortage of opportunity to review rates and switch to a personal banking solution that offers favourable terms. However, despite the wide range of offers available, many people remain with their existing current account provider even when their rates are less than competitive. This inertia is generally attributed to the fact that consumers simply don’t realise the ease with which they can switch to a more effective account. Some develop brand loyalty over time that prevents them from shopping around for more effective deals.
Are you paying for the privilege of saving with a bank?
A new study by Savings Champion, the UK financial advice service, indicates that there are over 600 savings accounts (14% of all UK bank accounts held) which actually pay out less than 0.3% interest on monies held. Essentially, this means that consumers are actually paying their bank to store their cash, as the rate of inflation is higher than the accrued interest within these accounts. Popular current accounts from Nationwide, Natwest, First Direct and others offer 0% interest, which amounts to customers paying the bank to hold onto their money for them.
Choosing the best current account to switch to
Given the prevalence of poor rewards for consumers, it’s important to shop around and switch current accounts periodically, to make sure that you benefit from the best possible deals on the market. If you’re confused about the various rates available, follow this quick guide to select the best current accounts and start getting a better return on your hard-earned cash…
Best “Switch Accounts” Offers
Co-op Standard Current Account
The Co-op will pay you £110 if you switch to it. You can also earn up to £5.50 a month with its Everyday Rewards scheme meaning you could earn £216 in the first year (the maximum benefits earned falls to £66 per year after this). It’s a bit of work to earn the rewards – you need to pay in £800 per month, pay out 4 direct debits, receive statements by email and log in regularly as well as stay within your overdraft limit. The account pays no interest and there is also the downside of a £10 per month charge for an un-arranged overdraft (after a £20 free buffer) with an 18.9% interest charge on top. Avoid this account if you’re likely to slip into overdraft every do often.
Co-op offers the full £85,000 UK savings safety guarantee in conjunction with Smile and Britannia BS, so make sure you don’t have more than £75,000 across the three brands or you won’t be fully covered.
M&S Bank offer a £50 M&S Gift Card if you switch to it. You can also earn an extra £5 per month (added to the gift card each month) when you pay in £1,000 per month and maintain 2 active direct debits. This online only bank account has no monthly fee and an interest free overdraft of £100. They offer a gift card with up to £170 for everyone who switches to them. In addition you will earn 1 point for every £1 spend on your M&S Debit Card in store via the M&S Loyalty Scheme.
Another benefit of M&S Bank is you get access to its 5% Regular Saving account. This savings account is one of highest interest paying savings account on the market. You can earn 5% AED/gross fixed interest rate on deposits of between £25 and £250 per month, up to £3,000 in any year. M&S Bank offers the full £85,000 UK Savings Safety Guarantee.
The First Direct “1st Account” allows for £250 of interest-free overdraft, and comes with a ‘satisfaction guarantee’ – if you don’t like the account, the bank will give you £100 (though you need to have deposited £1,000 every month for 6 months beforehand). The bank will also give you £100 for joining, though you have to have deposited £1,000 in the account within 3 months of the open date. First Direct also offers ‘text message banking’ which allows you to receive a mini statement by phone, know when you reach your overdraft, and other information as well.
First Direct offers the full £85,000 UK Savings Safety Guarantee in conjunction with HSBC so make sure you don’t hold more than £85,000 between these 2 banks.
Best Accounts For Interest On Savings
TSB’s Classic Plus
The TSB Classic Plus is one of the best current accounts available at the moment. It offers 3% on balances of up to £1,500. It also offers up to £10 per month cashback based on paying at least 2 direct debits per month from the account and making 20 debit card transactions per month. These cashback offers are available until 30th June 2018.
The downside is that customers wanting to use the account are required to pay in a minimum of £500 each month to benefit from the rate. They also need to register for the online banking function and opt for paperless statements. TSB offers the full £85,000 UK Savings Safety Guarantee.
FlexDirect from Nationwide also pays out 5% interest for account holders. The rate is applied for all savings held in the account, up to a maximum of £2,500. The downside, however, is that anyone wishing to use the account is required to pay in a minimum of £1,000 each month to maintain the rate. And after just twelve months Nationwide actually decreases the interest to just 1%.
Nationwide offer a “refer a friend scheme” which nets both you and your friend a £100 bonus if they switch to this account. You can refer up to 10 friends per year, earning you a nice £1,000 bonus if you’re a persuasive type. The account offers an interest free overdraft for 12 months (reverts to 50p per day for the overdraft after 12 months). Nationwide offers the full £85,000 UK Savings Safety Guarantee.
The Santander 123 account offers interest of 1.5% on balances of up to £20,000 making it an attractive option for bigger savers. The account offers 3% cashback on landline, mobil, internet and TV bills, 2% on energy bills and 1% on water, council tax and Santander mortgages. To qualify for this and the interest rates you must pay in at least £500 per month and have 2 active direct debits on your account.
Santander offers the full £85,000 UK Savings Safety Guarantee in conjunction with Cahoot so make sure you don’t hold more than £85,000 between these 2 banks.
Best Account For Cashback
Natwest Cashback Account
If you are more interested in cashback than earning interest on savings then Natwest’s Cashback Account could be a good option for you. The account has a £3 monthly fee but offers 3% cashback on a range of household bills including council tax, utilities TV, phone and broadband. You need to spend at least £100 on these household bills to benefit from this account.
If you live in Scotland you can get the same deal from The Royal Bank of Scotland. Both banks offer the full £85,000 UK Savings Safety Guarantee.
Halifax Multi-Reward Current Account
To bank with Halifax and benefit from a range of added-value options, you’ll have to accept the fact that you won’t receive any interest at all on your current account. Instead, Halifax has provided a number of extras for banking with it, including home emergency cover, travel insurance, mobile phone cover, AA breakdown cover and a range of cashback opportunities for certain purchases. However, it costs you a whopping £15 per month to maintain the account, unless you are able to pay in at least £750 each month, and run two direct debits from the service. If this is the case, your monthly payment reduces to £12 each month. However, it does offer customers a £75 switching incentive to encourage people to sign up.
Santander 123 Lite
The new Santander 123 Lite Account offers cashback on household bills in return for a £1 per month fee and no interest on your savings. You will earn 3% cashback on phone, broadband, mobile and TV. A lower rate of 2% cashback is earned on gas and electricity with 1% being offered on water, council tax and Santander mortgages.
To qualify for the cashback each month you must have paid your monthly fee, paid in at least £500 and have at least 2 active direct debits. Santander shares its £75,000 UK savings safety guarantee with Cahoot, so don’t hold more than £85,000 across the two banks.
Should you be switching current accounts right now?
This reluctance to undertake market comparison means that even for high earners, many of us are not reaping the various incentives and rewards available through sensible comparison of current accounts. There are a good number of positive deals out there for people prepared to shop around and select the best current account to meet their individual financial circumstances and requirements. A simple online comparison will show the best deals out there at the moment, and will provide details about the incentives the leading banks offer in order to persuade customers to make the change. Switching is painless, and you could reap significant rewards in terms of interest rates, perks and enhanced benefits.