Challengers step up the incentives to switch accounts

Last year, 1.03 million customers switched their bank account, compared with 1.15 million in 2014. However, switching rates rose by 11per cent in the last quarter of 2015, largely as a result of a high-profile advertising campaign in September.

Richard Neudegg, head of regulation at uSwitch.com, says: “Despite 2015 seeing some of the best financial incentives for switchers, many still struggle to see the value in switching. The banks need to up their game and do more to help their customers understand their current account usage by prompting them with clear information. Shining a light on the true cost of current accounts and the available alternatives could galvanise more consumers to find out if they really have the best account for their specific needs.”

A number of banks and building societies now offer cash incentives to lure new customers, with some accounts offering up to £220 a year.

That’s more than you could earn in a standard savings account in a year. For example, Clydesdale Bank pays switchers to its fee-free Current Account Direct a cash bonus of £150. You would have to deposit £2000 in a savings account with an interest rate of 7.5per cent to earn the equivalent amount in a year.

Rachel Springall, finance expert at Moneyfacts.co.uk, says: “Current account providers are pulling out all the stops to grab the attention of new customers by rewarding switchers with a cash injection. Thanks to this competition, savers who are struggling to get a decent return with standard savings accounts may be more than interested in what these providers have to offer.”

M&S Bank is offering people who switch to its Current Account before April 5 up to £220 to spend in M&S stores. You get a £100 gift card when you move your current account, including at least two direct debits. M&S Bank will then top up the card with £10 a month for 12 months as long as you pay at least £1000 a month into the account and a minimum of two direct debits remain active.

The account comes with an automatic £500 overdraft, with no interest on the first £100, and access to the M&S Monthly Saver, which pays interest of 6per cent fixed for 12 months. You also earn one point for every £1 you spend on your M&S Visa debit card in M&S through the retailer’s loyalty scheme.

You could pocket £160 in the first year if you switch to the popular Reward Current Account from Halifax. There’s £100 for switching with the Current Account Switch Service. Halifax then pays £5 a month into your account as long as each month you pay in at least £750, pay out at least two direct debits and stay in credit. The £100 switching offer also applies to the Halifax Ultimate Reward Account and the Halifax Current Account.

Switch to any of Clydesdale/Yorkshire Bank’s five current accounts before the end of March and you get £150 in cash, as long as you transfer at least two direct debits, pay in a minimum of £1000 a month for two months and activate online or mobile banking. The Current Account Direct account also pays 2per cent credit interest on balances up to £3000.

First Direct will pay £125 if you switch to its 1st Account and pay in £3000 within three months. The account also offers an interest-free £250 overdraft. Watch out, though! If after six months, you don’t pay at least £1000 a month into the account, maintain a monthly balance of £1000 or hold another selected First Direct product, you could be charged a fee of £10. If you aren’t happy with First Direct and leave within a year, it promises to pay an additional £100.

HSBC isn’t quite as generous. It offers £120 if you switch to its Bank Account, Advance Account or Premier Account before the end of the month. Bank Account customers must pay in at last £500 a month. The minimum funding on the Advance Account is higher at £1750. Both accounts give access to preferential savings rates.

The switching offers typically come with a raft of terms and conditions, so it’s important to read the small print carefully. You almost always have to use the Current Account Switch Service to qualify for the cash bonus. The money is also usually only paid to new customers.

A number of other banks, such as Barclays, Santander and The Co-operative, do not offer cash incentives to switchers, but customers can earn rewards on their current accounts, However, fees often apply. Santander, for example, has recently increased the fee on its 123 account from £2 to £5 a month- though for anyone with savings of between £3000 and £20,000 the 3 per cent rate cannot be beaten, and there is cashback of up to 3 per cent on regular bills.

RBS offers 3 per cent cashback on a wide range of outgoings with its new Reward account, but the sums would have to add up as there is a £3 a month fee.

Switching incentives are appealing, but they should not distract from other features of current accounts, such as credit interest or overdraft rates. Ms Springall says: “While cash incentives shouldn’t be ignored, customers should choose a current account based on its overall package to ensure it covers all their financial requirements. This is particularly important if they want a reasonable overdraft to cover any unexpected outgoings, otherwise they could end up being stung with excessive fees.”

CASE STUDY

Terence Cooney, 61, is retired and lives in Glasgow. He recently switched his current account from Santander to Clydesdale Bank and says: “Santander recently increased the fee on the 123 Account, which I thought was a bit naughty. I didn’t think the benefits of the account were worth the higher fee, so I wanted to switch. I was also looking for a more straightforward account.”

Mr Cooney considered various options but eventually chose Clydesdale Bank – for several reasons. He says: “There is a branch close by and the staff were very helpful. I was also attracted by the bank’s Scottish heritage. The £150 cash incentive was nice, too.”

The switching process went smoothly and Mr Cooney describes the whole experience as stress-free.