Switching bank accounts is easier than many imagine
IF YOU only sourced financial advice from politicians, you might think switching bank accounts is next to impossible. Ed Miliband pledged that a Labour government would revolutionise banking by clearing hurdles to changing banks. Shadow chancellor Ed Balls alleged that “it’s very difficult to change bank accounts.” If you don’t like your bank’s behaviour – whether appalled by faulty systems or upset by Libor manipulation – these headlines may leave you feeling cornered by a cartel of institutions that won’t let you leave.
A survey by MoneySupermarket.com suggests a different story. Only 8.5 per cent of the 2,725 customers it polled said that, although they wanted to change banks, they wouldn’t do so because of the hassle involved. Many more were happy with their account or felt empowered enough to move if they weren’t. So what’s stopping the unhappy customers? And what should a potential account migrant consider when thinking about a move?
1 IS YOUR DEAL COMPETITIVE?
You may not trust your bank to always do the right thing, but do you trust it to ensure you receive the best returns on your deposits and pay the smallest charges for your debts? Kevin Mountford, head of banking at MoneySupermarket.com, advises taking into account the full deal you’re getting. “If you are unhappy with your bank, then jumping ship may not necessarily be the answer,” he warns.
Don’t leap to easy conclusions based on your bank’s reputation in the press. Consider your financial situation, how you use your accounts and whether introductory offers have lapsed. If you signed up for an account with low overdraft charges, for example, you’ll likely receive a poorer return when in credit. Bank of Scotland’s Classic Account with Vantage offers 3 per cent on deposits over £3,000, but an authorised overdraft rate of 19.28 percent. In contrast, Northern Rock’s Northern 24/7 offers 0.25 per cent and 9.37 per cent respectively.
2 WHAT ARE YOU PAYING FOR?
Don’t limit your attention to interest rates. Many banks offer packaged deals – fee-charging accounts with extras like holiday insurance, currency services, or DVD rental. Georgina Partridge, partner and co-founder at Plutus Wealth Management, recommends thinking about practicality. “Does a basic bank account fulfil your requirements? Do you need additional benefits?” she asks. If you’re paying £25 a month for travel insurance you never use, you’ve good reason to move your money. Equally, if you spend a fortune on individual insurance policies, travel regularly or love films, you may get a better deal from a single product.
3 HOW DO YOUR ACCOUNTS FIT WITH YOUR FINANCIAL PLANNING?
It’s also important to assimilate your decisions about current or savings accounts into broader financial planning. Many consumers house investments and debts under one roof – it’s convenient, for example, to pay a credit card bill from an account at the same institution. Partridge warns that such convenience may prove chimeric. “You should access the entire market for each different financial need,” she says. “Banks don’t usually offer cross-product discounts.”
So make sure you manage your different financial products efficiently. It could be useful to get financial advice, especially after a major life event. “Managing your accounts is a small element in your overall planning,” says Partridge. “An independent financial adviser will be able to assist you to pull this into a bigger picture and help you achieve your goals and objectives.”
4 HOW LONG SHOULD IT TAKE?
If you’ve made a reasoned decision to switch account, don’t be put off by loose talk about the difficulties. Banks and building societies must follow strict rules to make switching as easy as possible – your old bank has three working days to pass information on to your new bank, including details of standing orders and direct debits. FSA guidelines also require your new account to be operational within 10 days of your application’s approval. If you’re concerned about mislaid money, use a switching service to make the process as smooth as possible. Even if your current bank doesn’t want you to leave, its competitors are eager for you to transfer.
Complaints about a lack of competition among retail banks often rely on the torpor of customers. Infamously, anyone who signs up to one bank as a student is less likely to subsequently leave than to get divorced. But this doesn’t mean switching accounts is impossible. Just make sure you’re doing it for the right reasons.