This piece on why you should consider switching bank account is by The Treasurer from Team Monevator. Check back every Monday for more new perspectives on personal finance and investing from the Team.
Sounds almost too good to be true, doesn’t it? Getting paid a wad of notes to do very little, without a smidgeon of risk.
Yet earning free cash for switching bank account has been ‘a thing’ for over a decade.
Married people are more likely to get a divorce than switch bank account. It’s unsurprising then that retail banks work hand over fist to attract new customers. They hope that once you switch and pay in your monthly salary, your future self won’t bother switching again until the day you die.
Plus, once you’re a customer of theirs they can then turn on the ‘hard sell’. They can promote substandard products – packaged accounts with benefits you’ll never use, or an overly-expensive life insurance policy. They may even get a mortgage application out of you.
Customer apathy is big business in the personal finance world. It can deliver much more than enough to cover any initial switching bribe.
Yet it’s possible to play the banks at their own game, by switching bank account for the sole reason of grabbing the cash incentives.
Switching bank account for fun and profit
Without trawling through years of bank statements, I can’t put an exact figure on what I’ve earned over the years from my bank account switching.
It’s certainly north of £1,000.
First Direct, HSBC, Lloyds, Halifax, NatWest… You name the bank and there’s a fair chance I’ve exploited them.
My biggest bonus was from Clydesdale Bank back in 2017, when it offered an eye-watering £250. At the time I was working with financially astute colleagues. Between us, we would have opened at least 20 accounts.
As none of us kept the account after bagging the free cash, our office must have cost Clydesdale a cool £5,000. Plus a lot of plastic!
Admittedly, there were some hoops to jump through to get the offer, such as having to pay in a set amount over three months. But nothing too taxing. (We’ll discuss how to get past these hoops below).
Once I’d ditched my shiny but sub-par Clydesdale account, I moved my faithless custom to the kind folks at NatWest. I bagged another £125 for my troubles.
I’ve done this time after time, for years. I’ve even scored the same bonuses more than once.
While you almost always have to be a new customer to qualify for a bonus, some banks are more lenient than others when deciding who is and isn’t a ‘new customer’. (Halifax scores highly in this regard.)
Top tips when switching bank account
Let’s assume you haven’t considered switching before and you want to get involved. While it’s an easy hobby, there are a few things worth knowing about.
Tip 1: Open a ‘Mule’ Account
My first tip is to open a separate bank account that you have no intention of using other than to hop to another bank account. In other words, retain your existing bank account and open another for the purposes of making your first switch. In personal finance circles, this is known as a ‘mule’ account.
Take your pick, but avoid choosing an account that pays – or has paid – a switching bonus in the past. This is because once you’ve been its customer, it will be far harder to squeeze a bonus out of that bank in the near-future.
Barclays is my top pick for a mule account. It has never offered a bank switching bonus to my knowledge. Digital banks that enable you to open an account immediately through an app, such as Starling or Monzo, will also suffice. Fintech startups have so far avoided the temptation of directly paying cash to attract new customers.
Tip 2: Learn how to get past those hoops
Once your mule account is set-up, you need to understand that some (not all) banks require you to comply with set criteria to qualify for their bonus.
Often this means paying in a certain amount within one to three months. This one is easily circumvented by paying in the cash and then immediately withdrawing it. I have never yet seen a rule that requires the cash to be kept in the account for any particular length of time after it’s deposited.
A more annoying ‘hoop’ is a requirement to have a number of ‘active’ direct debits – usually two – paid out from the account. This isn’t your ‘real’ bank account, so it poses a problem, right?
Well this again can be circumvented by being creative.
If you’re keen to share some of your easily-gotten switching gains, there are a number of charities that will accept direct debits of as little as £1.
If you don’t want to go down the charity route, look into a savings account. Some enable you to fund your account via a direct debit. Try Scottish Widows or the Post Office. Like this you effectively pay yourself.
Alternatively, Small Direct Debit will set up a direct debit for you for the princely sum of £1 a year. However, do check the bank switching T&Cs1 to see whether it requires the direct debit to be monthly. (Note: I haven’t used this last company so please do your own research.)
Tip 3: Get your head around the myths
Finally, let’s consider some common fearmongering.
Credit score impact: You may be worried that continuous bank switching will harm your credit score. It’s a legitimate concern – reducing your future credit worthiness probably isn’t worth a few hundred quid. So it’s worth knowing that when you apply for a bank account, you’ll undergo a standard credit check. That isn’t the same as the one required if you were trying to obtain credit.
Plus, the search gets wiped after a year. Unless you’re planning to obtain a mortgage or hoping to access significant credit over the next six months or so, opening a handful of bank accounts shouldn’t do any harm.
While it’s rare, you may be rejected for a new bank account. To reduce the chances of this happening, turn down any offer of an overdraft facility.
The hassle factor: The other big myth about bank switching is that it’s too much hassle. But as long as you take the time to read the T&Cs and satisfy the switching criteria, it’s pretty straightforward.
The Current Account Switching Service ensures that once you’ve agreed a switching date with your new provider – usually a date within a week or so – your switch will take no more than seven days to complete. Any payments, direct debits, or standing orders will be moved automatically, which is handy for future switches. And your new provider takes on full liability for any mistakes.
Get your profit antennas twitching
I hope you’re all now itching to get switching!
Currently switching bank account offers are a bit thin on the ground, but I’ll be coming back to Monevator soon to highlight the best deals available.
In the meantime, please do share any you find in the comments below.
In time you will be able to see all The Treasurer’s articles in his dedicated archive.
- Terms and conditions.