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Could you be better off switching bank accounts?

Could you be better off switching bank accounts?

Category: Banking

Updated: 01/09/2014
First Published: 01/09/2014

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

There's a definite surge of interest in bank accounts at the moment. Not only have several new providers got into the current account arena over the last few months, but the raft of new account launches and extra hype surrounding the Switch Guarantee service means providers are trying harder than ever to compete for your business. So, could you be better off by switching?

If you do your research, there's every chance that this could be the case. Unfortunately it's something that far too few people even consider, with several studies pointing to a distinct feeling of apathy among banking consumers, few of whom take the time to see what else is out there.

According to research from TSB, this is a particularly big problem among women. Although 91% of women surveyed consider looking after their finances to be a key priority, they only change bank account once in their adult life – and often they don't switch at all.

In some cases this could be due to misplaced feelings of loyalty, or perhaps because it seems like too much hassle to switch. Some might be concerned that they'll get a worse deal if they went elsewhere, but there's no harm in looking. If you've been with the same bank for years and aren't overly happy with the service it could well be time to test the water, because with so many new accounts on the market, there's never been a better time to switch

Andy Piggott, head of current accounts at TSB, said: "Money is an integral part of our lives and it is important people trust their bank, have confidence that it will look after their money and know that the bank suits their individual financial needs. Banking is about the whole experience and it is therefore important that people take time to choose which bank they switch to."

So, with that in mind, we've compiled a quick overview to help you see if you could be better off by switching.

Top tips to find an account that works for you

  • Consider how you use your account. Do you always keep your account in credit, or do you find yourself dipping into the overdraft at the end of the month? This is the most important aspect to consider, because it'll determine whether you should look for an account with a good interest rate for in-credit balances or one with low overdraft charges.
  • Watch out for overdraft fees. Speaking of overdraft charges, you need to make this aspect one of the biggest considerations. Even those that rarely dip into their overdraft might find they stumble on occasions, which is why seeking an account with low fees is vital. Some accounts have even been specifically designed to offer low overdraft rates – check out our best buy table to compare them – and make sure you're getting a decent overdraft buffer too. Also, don't always be swayed by daily charges – they may look simpler than being charged a percentage rate but they can quickly add up, so always do your own calculations to see whether or not you'd be better off.
  • Look at account management methods. These days most banks will offer several different ways to manage your account, but it's worth making sure they meet your needs. If you like being able to do some aspects of banking in person – such as paying in cheques over the counter, for example – than make sure your account offers a branch service. You'll probably want to check it's got good online banking facilities too, as well as an app for banking on the go.
  • Do you want to pay for your banking? Really, this should come with a few extra questions – do you want a basic bank account with no added extras, or do you want a packaged account that includes the likes of travel insurance, breakdown assistance, gadget cover or freebies? There are still free bank accounts to be found, but it might be worth taking a closer look at the benefits that can be offered with a packaged version. If they outweigh the monthly fee – and if the associated insurances offer enough cover for your requirements – they could be worth considering.
  • Want extra rewards? Another aspect you might want to consider is whether or not your account comes with any extra rewards, such as cashback or loyalty points. This sector of the market has exploded over the last year, and cashback in particular is coming to the foreground. It used to be reserved for credit cards but these days a lot of debit cards offer cashback too, so if you want to get more from your everyday spending, it could be worth looking for an account that comes with a reward scheme.

What about high interest bank accounts?

High interest bank accounts will often pay interest that far outweighs anything that can be earned with a traditional savings account, and it's this reason that they're growing in popularity. A lot of people are looking to these as a viable alternative to a savings account, and when you can achieve up to 5% interest from TSB's Classic Plus account and Nationwide's FlexDirect, they could be a great option.

Of course, there are some drawbacks. You don't get anything for free, as they say, and most of these high interest current accounts will come with various restrictions and limitations so as not to become solely used as savings accounts.

For example, most will only offer the headline interest rate on balances up to a certain amount, with anything over that maximum level not generating any interest. Most have minimum monthly funding requirements too – you'll need to deposit £500 or £1,000 a month, for example, to secure the rate – and some have additional rules too, such as requiring you to hold at least two direct debit mandates with them.

If you're happy with the rules and regulations, however, high interest current accounts can be ideal, particularly if you rarely go into your overdraft (always try not to, as the trade-off of paying high interest is that they often charge high overdraft fees, too). They could even be a great home for a portion of your savings, so why not see which ones could be right for you?

What next?

Compare bank accounts to find one that meets your needs.

Consider high interest current accounts – check out the best buys.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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