COMMENT
How To Get Free Money From Banks!

By Alison Hunt (TMFAlly)
August 11, 2005

If you've ever been stung by an unfair overdraft fee, or been charged because a payment has taken too long to clear in your account you're probably no fan of your bank. After all, most of them pay a pitiful rate of interest but are all too quick to punish us with extortionate fees should we slip up.

But if I were to tell you that there are a number of ways that the canny consumer can get their own back and actually make money from banks, would you be interested? Yes, we can show you three different ways to squeeze some cash from banks (and none of them involve drilling a tunnel underneath one for three months!). Want to find out more? Then check out these top tips:

1. Switch Bank Account

This is the quickest and easiest way to make some money from your bank. High street banks dominate the personal banking market although most of them offer paltry rates of interest, shoddy service and hefty charges. Consumer magazine Which? found that over a third of us are unhappy with our banks, but amazingly, only one in twenty of us actually do something about it and switch.

However, online banks are fighting back. Not only are many of them claiming to provide a better banking service, they're putting their money where their mouths are and giving financial incentives, too. Apply online for the Alliance & Leicester's Premier Plus account and you'll receive £25 when the account is up and running, for free. First Direct has recently doubled its usual £25 joining incentive to £50, and Lloyds TSB is also offering £50, should you switch to its Classic or Classic Plus account.

And if you currently bank with (or switch to) the Alliance & Leicester Premier Plus account and decide to recommend a friend, you will both receive a further £50! Plus your friend will receive his or her £25 joining incentive. So that's up to £75 each when your accounts are up and running if you both switch and one recommends the other. So you can gain up to £75 free money, simply for switching bank account.

You can apply for the Alliance & Leicester and First Direct accounts in our Banking Centre.

2. Earn cashback with your debit card

How many times a week do you use that debit card to pay for something? Debit cards are fast becoming our favourite method of payment, freeing us from having to use the cash machine or the dreaded cheque book. But wouldn't it be nice if we could get rewarded for our spending, in the same way as cashback credit cards do?

Well, actually you can. By switching to the Moneyback current account from Halifax and arranging for your salary to be paid in each month you can benefit from earning cashback whenever you use your debit card. The first £10,000 worth of debit card purchases will qualify for 1% cashback, with any subsequent spending earning 0.1%. Although this account only pays 0.5% interest you can earn £100 if you spend £10,000 in the year with your debit card. If you're the kind of person who prefers not to have a large balance in their current account this could be a good way to make free cash!

You can also apply for the Halifax Moneyback account in our Banking Centre.

3. Maximise interest earned

Finally, here's a tip to maximise the amount of interest your cash can earn, over the year. If you're the type of person who likes to keep a healthy balance in their current account, you should concentrate on earning as much interest as possible. Check out the rate your account is paying. Most of the big High Street names pay around 0.1%, absolutely dire when you consider that you can earn up to 50 times this by switching to another account.

Alliance & Leicester's Premier plus account pays 5% AER (fixed until 30/9/06), Lloyds TSB pays 4% AER and First Direct will pay 2% AER, and if you switch to any of these you will receive the joining incentive mentioned earlier, too. In addition to these, Citibank will pay 4.59%, Cahoot will pay 4.35% AER and Smile 3.3% AER. All of these accounts will require you to pay in your salary/income in order to earn the rates given (some specify £1,000 minimum). By keeping a balance of £500 in the Alliance and Leicester account, you could therefore earn a further £25 in interest each year, before tax.

Alternatively, you could use a technique that many people choose which is to 'sweep' excess funds regularly into a savings account. Not only does this keep your current account relatively empty (with just enough to cover bills etc) and thus help prevent overspending, your cash can also work harder as savings accounts invariably pay more interest. This method also allows more choice of current account; by not having to look at interest rates we can concentrate on other features, instead.

For example, you could switch to the Nationwide BS current account and open a Nationwide BS e-savings account too. Although the current account pays just 0.5% if you pay in £500 each month (1.5% if you pay in between £500-£1000 and 3% for monthly payments above this) the e-savings account pays a healthy 5% AER. Sweeping cash between the accounts is easy and instantaneous and if you do so regularly every pound that's not required can earn as much interest as possible. And sweeping £150 each month into the e-savings account could earn you an extra £48 in interest each year, before tax (and you'd have £1,800 in savings, too). But there's more; by choosing the Nationwide BS current account you can also benefit from the fact it's the only account to offer free cash withdrawals worldwide, so you could say goodbye to ever having to change up travel money again!

So, there you have it, three ways to get free money from your bank. What are you waiting for?

You can apply for the Cahoot, Citibank, Smile and Nationwide BS current accounts in our Banking Centre.