This content has been updated on 1 September 2015 after originally appearing in the MSE weekly email on 26 August 2015.
Banks are rarely mentioned in glowing terms. Whether for PPI mis-selling, market-rigging or allegations of aiding tax avoidance, they have a bad name. So it's simple...
If your bank's a b*****d, don't bitch, just switch.
The top accounts now pay you a whopping £150 to change, yet in the last year, only 2% of accounts were switched. Thankfully, you can do it right now, and it's quick and easy for most. Here are the 10 need-to-knows (including our latest bank customer service index)...
1. Seven-day switching means it's mostly no hassle. Seven-day switching is now almost two-years-old. Within seven working days, your new bank will...
- Switch your direct debits and standing orders for you.
- Close your old account & ensure all payments to it go to the new one.
Earlier this year, we did a snap Facebook poll on switching – 82% who'd switched using seven-day switching found it 'easy and hassle-free'. Only 4% had problems. And we often get emails such as Keith's: "Switched to Halifax. Very easy, good service, excellent benefits, £100 paid quickly plus £5/month."
What counts as switching to get the perks?Full account-by-account info in Top Bank Accounts. For most below, to get the perk and fee-free banking, you must switch using the bank's switching service and...
a) Pass a credit check, though these aren't normally too harsh.
b) Most require a 'min monthly deposit'. In reality, it's just how they ensure you pay your income in. A £500/mth pay-in = £6,000/yr salary. If this may be tricky for you, see point 4.
c) Many require you to have two or three direct debits/standing orders.
2. New. Free £150 for switching to no.1 customer service bank. Some banks want you so much they pay you to switch, and this bribe is tax-free. Here are the main players:
- Free £150 + No. 1 service: First Direct* pays the joint highest bribe at £150 if you apply via our link (£125 otherwise), plus it offers a £250 0% overdraft and 6% linked savings.
- Free £100 + £120 to save: HSBC Advance* gives £100, plus £10/month for one year to ISA savers too. It takes a bit of work and requires a high min pay-in, so we've full HSBC info.
- Free £150:Clydesdale's* Current Account Direct pays the joint biggest one-off switching bribe. It also pays 2% AER variable interest on up to £3k.
- Free £100 + £5/month: Halifax Reward* also pays you a flat £5/month (after basic tax) if you're in credit.
- Free £100 + £25 to charity: Co-op* gives £25 to one of seven charities.
- Free £100 M&S gift card + £10 Dine In voucher: M&S Bank* also has a £100 0% overdraft and linked 6% regular savings.
3. Top for savings interest: 3% on £20k or 5% on £2k. The alternative to suck in customers, rather than cash bribes, is to pay loss-leading interest rates for those in credit. As with normal savings, interest is taxed.
- 3% interest + up to 3% cashback: Santander 123* pays 3% AER variable interest if you've £3,000 to £20,000 in it – almost double the best-buy normal easy-access savings. Couples can open one each and a joint one, provided they meet all the criteria, so that's a max £60,000 between two. No other easy-access account pays well on anything close to that.
There's a £2/month fee, but for most that's easily covered by the cashback it pays on direct debits: 3% on mobile, phone & b'band; 2% energy; 1% water, council tax and Santander mortgage payments. As Hannah tweeted: "£260 cashback yearly. Mortgage, broadband, phones, TV, utilities." Alternatively...
- Earn 4% on £4,000-£5,000: Club Lloyds* pays 4% AER variable.
- Get £5 each month you stay in credit (+£100): Halifax Reward* pays this regardless of how much you have.
- Saving monthly? Two free £100 accounts, First Direct* & M&S* (free gift card), have linked 6% regular savers for saving up to £300 & £250/month.
Can you open more than one for large sums? Yes, but it's tricky. For how to combine top bank savings, see the 5% Savings Loophole.
4. Free £100 for switching and you needn't pay in owt. Many with low or uncertain incomes tell us they worry about banks' 'minimum pay-in' terms. This doesn't mean you must be in credit, only that you need to pay in a set amount. It's banks' way of ensuring your income/salary goes through the account. Eg, £1,000/month equals a £13,200/year pre-tax salary.
M&S Bank*, which gives a £100 M&S gift card + a £10 Dine In voucher for switching, a £100 0% overdraft & linked 6% savings, is the only top pick with no minimum pay-in (though you need two+ direct debits). Here's what each bank requires:
- No min pay-in: M&S Bank*
- £500/month (equiv £6,000/year salary): Santander 123*
- £750/month pay-in (£9,150/year): Halifax*
- £800/month pay-in (£9,850/year): Co-op Bank*
- £1,000/month pay-in (£13,200/year): Clydesdale* and First Direct* (With First Direct, you can get it with less, but there's a £10/mth fee.)
- £1,500/month pay-in (£22,000/year): Club Lloyds* (£5/mth fee if less.)
- £1,750/month pay-in (£26,400/year): HSBC Advance*
Can I jemmy the pay-in? Usually. The rules say you need to pay in a set amount from external sources. So let's say you want a £1,000 pay-in but only have £500 coming in. Get the £500 paid in, withdraw it either as cash or to another bank, then pay it back in, and BINGO, you've qualified.
5. The MSE gold medal for bank service. We interact daily with our bank so service counts and you need to decide how much you value it over the cash perks and/or interest offered.
Our latest six-monthly poll closed last week. And eat your heart out Mo Farah, as our gold medallist, yet again, is First Direct*. It pays £150 to switch, has a 0% overdraft up to £250, and a 6% linked regular saver.
HOW DOES YOUR BANK RATE ON SERVICE?
Accounts that are best buys are linked
|Rank & provider (a)||Great||Poor|
|1. First Direct*||92%||1%|
|4. Co-op Bank* (incl Smile)||73%||7%|
|7. Bank of Scotland||49%||14%|
|11. Clydesdale* & Yorkshire*||43%||16%|
|9,285 votes. (a) Ranked via 2 pts for great, 1 for OK, 0 for poor. Excludes banks with sub-100 votes. This table excludes people who voted 'OK' so won't total 100%. See full results breakdown.|
6. Which pays more – free cash or bank savings interest? As a rough rule of thumb, if you've £10,000+, Santander 123* always wins. Below that, it's close – to work out which wins, we need to get a little nerdy...
a) How often will you switch? You could switch annually (or more often) to keep bagging free £100s. To earn more in bank savings needs £3,000+. As savings pay each year, if you want one account to stick with, they win.
b) Where'd you save it otherwise? The top easy-access savings accounts pay 1.6% AER, so you can earn that without switching bank. So if bank savings pay, for example, 3%, then the gain from choosing it as your bank is 1.4%.
c) Tax. The free cash for switching is tax-free, but interest is taxed like income, eg, at basic rate you lose 20% of it (higher rate, 40%). So £100 free cash is £100, but £100 interest is £80 (£60 higher rate).
As you can see, there are many variables, but in a nutshell, if you don't want to regularly switch and you have above, say, £4,000, high-interest current accounts win. PS: Also read Martin's Santander 123 vs Cash ISA analysis.
7. How to cut overdraft charges to 0%. An overdraft's a debt like any other, so if you often go into the red, cutting its cost makes it easier to clear.
- Switch to a 0% overdraft. First Direct* has a £250 0% overdraft, and you can put the £150 it pays switchers towards it. Nationwide's FlexDirect* gives a bigger 0% overdraft, though the amount is credit score dependent, but only for a year (50p/day after, so aim to clear before). Info: Top 0% Overdrafts
- Shift it to a 0% credit card. Some cards let newbies do 0% money transfers, where they pay cash in your account to clear overdrafts, so you owe the card instead. There's MBNA's* up to 36 months 0% for a 2.99% fee (min £3), or, if you can repay quicker, Virgin Money's* 24 months 0% for just a 1.9% fee (min £3). Yet always...
(i) Eligibility Calc to see which card's most likely to accept you.
(ii) Ask for a 'money transfer' to do this; don't just withdraw cash.
(iii) Never miss a min monthly repayment or you can lose the 0% deal.
(iv) Ensure you repay before the 0% ends or rates jump to 22.9% rep APR. Full help in Money Transfers.
8. Free travel insurance bank accounts. The Nationwide FlexAccount* is fee-free and includes Europe travel insurance for the account holder(s) up to age 74 (which is when travel insurance gets expensive). You can upgrade to world cover for £40/year. Full eligibility info and more options in Best Bank Accounts, or see Cheap Travel Insurance to compare.
Or pay £10/month and the Nationwide FlexPlus* gives worldwide family travel insurance, smartphone insurance for all the family (kids must live at home) and European breakdown cover. A family needing them all could pay £600/year separately. See Top Packaged Accounts for more options.
As with all travel policies, always disclose pre-existing conditions.
9. Fed up with banks? Want something different? Here we factor in perks plus ratings from Ethical Consumer, which rates banks' behaviour on the environment, human & animal rights, politics and investments.
Two building societies do well: (i) Nationwide*. See above for its deals. (ii)Norwich & Peterborough. Its debit card allows cheap spending abroad. For a real change, try a credit union (local savings and loan non-profits), though not all offer current accounts, so check yours.
10. Can't get a bank account? There is a way. Sadly, more than one million people in the UK don't have a bank account. Yet as long as you've ID, you should be able to get an account, though you need to ask the right way. See our full Basic Bank Accounts guide for step-by-step help.
PS: Barclays customer? Get a free £48/year. It's bottom for service and trounced by accounts above, but if you still want to stick, ensure you get a free £48/yr for Barclays customers.