COMMENT
How You Benefit When You Switch Banks

By Alison Hunt (TMFAlly)
February 4, 2005

Why do millions of us insist on leaving our hard earned cash in bank accounts that earn little or no interest? Or accept being penalised each month for going a few pounds into the red?

Though a huge number of people have switched in the last few years, millions more seem happy to languish with poor accounts. Apathy seems to be a large factor - in fact, the Bank of England believes that as it takes people 91 years on average to move bank account, we're more likely to die than switch!

If you've been thinking about switching for a while, take a look at these three people who could benefit from moving their account.

1. Joe Average

Joe is 27 and takes home £1,000 a month. His bank account has an average balance of £400. Towards the end of the month however, Joe tends to slip into the red by up to £300. Joe's current account pays him an interest rate of 0.1%, and as he hasn't got an authorised overdraft he pays 29.8% when overdrawn (after a £10 fee-free buffer). If this were authorised he would pay 18.2%.

Clearly, although Joe usually has a respectable balance in his account, he's being stung each time he goes into overdraft. His main criteria therefore should be to pay as little in charges for his overdraft as possible.

If he were to switch his account to Alliance and Leicester's Premier Plus Account, he would benefit from paying absolutely nothing for his overdraft for 12 months. After that, he would pay only 7.9% for the amount he goes overdrawn (over a £10 buffer).

This is a massive 21.9% less than he's paying at the moment and 10.3% less than an authorised rate would be. Not only that, but he would also be getting interest at 5%, free travel insurance, and £20 for his trouble!

If he chose HSBC's bank account, Joe would get a 9 month interest-free overdraft, paying 14.8% after this time (over a £50 buffer) – 3.4% less than his 'authorised' rate.

And Nationwide's FlexAccount could offer an authorised overdraft of just 6.75% over his £30 buffer, with the benefit of an interest rate of 3%.

Switching Joe's account could save him up to £25 each year in overdraft charges and make him up to £16 in interest.

2. John Wealthy

John is 32 and takes home £2,500 a month. His account balance is on average £1,500. John never goes overdrawn. John's bank account pays him 0.1% interest.

John has a healthy balance each month and as he sensibly avoids going into overdraft, he should concentrate on obtaining the best interest rate he can.

If John were to switch to the Alliance and Leicester account he could receive 5% on his money, or switching to Cahoot's current account would give interest at 4.35%, and the benefit of free purchase protection.

Switching John's bank account could make him up to £45 interest each year (assuming he's a higher rate taxpayer).

Obviously, however, a sensible thing for John to do would be to sweep any extra cash into a mini cash ISA, or high-interest savings account.

3. Janet Normal

Janet is 29 and lives with her partner. She takes home £1,500 a month; her balance is usually around £700. She rarely goes overdrawn. Her bank account pays her 0.1% interest each year.

Janet is a happy medium, thus she could look for good all-round type bank accounts. If she switched to Smile's current account, she would earn 3.25% gross interest, paid monthly, with a fee free overdraft buffer of £500. Not only that, but Janet would know her money was not being used unethically, due to Smile's strict ethical policy.

Other good options, as seen previously include Alliance and Leicester and Cahoot - offering current accounts that pay good rates of interest with fee free overdraft facilities.

Switching Janet's bank account could make her up to £28 interest each year.

If you fall into any of the three examples given, switching your bank account would definitely be worthwhile. And don't let the idea of moving numerous direct debits/salary etc put you off – banks and building societies have to make this incredibly easy for you and will supply some form of 'switcher pack' – you just fill in the details and they do the hard work.

So give it a go – after all, if you don't you're turning down free money!

You can apply for the Alliance & Leicester, Nationwide, Smile and Cahoot accounts in our online banking centre.