Hello everyone! Today I’m going to be discussing switching banks, covering off how it works but also the advantages you can get in terms of bank switching bonuses.
People rarely do switch bank accounts in practice. The consumer research here is really interesting in demonstrating that people simply tend to pick a single bank when they’re young and never change.
However this behaviour isn’t good for us – we should be getting as much as possible out of our banks and getting them to work for your money!
As ever – our normal note that we take care with what we write on this site but it is not official “financial advice” and whatever investments and savings you enter for need to be right for you specifically, and we also suggest doing your own further research. If you’re in doubt about anything, it’s worth consulting a regulated and reputable financial advisor who can provide tailored advice built for you.
Is switching banks worth the effort?
I’ll now cover the for and against of switching banks – but before getting into that argument, one point I would make switch everything from one bank to another actually isn’t much effort at all.
The reason for this is that the bank switching services are now well established and mainstream – all you need to do is give your new bank the details of your old bank, and they’ll handle the legwork of transferring your account balances, direct debits and closing your account for you.
So why else might we switch banks?
Switching banks provides generous switch bonuses
Whilst not the be-all and end-all, banks really want your custom and pay some very generous switching bonuses to do so – often between £100-£200.
To get this there’s usually some minimum requirements. You’ll often have to use the bank switching service I’ve mentioned above, and have a least two direct debits and a certain amount of money in the account. These vary, so you’ll need to read the terms and conditions.
Done cleverly and carefully, you can make good money with this with a little time – some finance bloggers switch regularly to take advantage of multiple offers!
Remember you can have a second account with some small direct debits that you can switch around – I do this myself.
Switching banks can lead to you finding better interest rates
At the time of writing, interest rates within the UK have increased considerably, but the amount of interest banks will actually pay you for your savings in interest varies considerably.
So if you’ve got a good emergency fund or some savings to hand it makes sense to putting in some time to finding a bank that’s giving you more for our hard earned cash.
Often these will be in the form of savings accounts which you can access after switching your current account, rather than a new bank’s current account. We don’t have the resources to always keep the best rates available updated, but Money Saving Expert are always good for this!
Switching banks can help you find better banking apps or service
Banks are not created equal, particularly given banking is now increasingly online only or done through apps rather than physical high street branches.
The apps the banks offer vary hugely – but really affect your customer experience as the user. Switching around lets you experience a range of options of what’s good and not so good and find out what may be useful to you.
I honestly hasn’t appreciated there was such a disparity until I started doing this myself!
Downsides to switching banks
There are a couple of potential downsides to switching banks that also need some consideration.
Switching banks can trigger a hard credit search
Remember that when you switch banks they may do a hard search on your financial history which can impact your credit score, so be cautious about lots of switches in a short term, especially if you need credit. (There’s also more on checking your credit score here).
As such, it’s actually best to avoid switching if you have any big financial borrowing needs like a mortgage coming up. There’s no hard and fast rules with credit scoring which is a bit made up anyhow, but hard searches don’t tend to matter after about six months.
We did have a question on our Facebook group of how much you need to worry about this – the effect on credit score is pretty minimal, but multiplies if you do it several times. The reasoning behind this is that banks may look your credit record as part of assessment for an overdraft.
If your credit score is fantastic, it’s likely not something to worry about – if you think you might be an edge case when needing an imminent mortgage, some caution might be sensible.
Switching banks and not switching everything can be a pain
Using the switch service means you have to switch everything and close your original account. Just occasionally however you may not want to do this – maybe there’s a good rate or particular service that your present bank offers that you’d lose.
It is possible to set up that second account, and moving funds into your account is a simple bank transfer.
To move direct debits though is a little bit more work – you’ll usually have to get in touch with whoever you are paying the direct debit to, letting them know you’d like the change your existing arrangements to another account, albeit you can usually do this pretty easily online.
Some providers do offer a partial switch service as well, although it’s not universal.
It’s also worth noting here that most of the switching bonus offers require a full switch, rather than a partial switch.
Switching banks can be difficult with a mortgage
Some mortgages offer you special rates for being a customer of that bank – the catch is you have to maintain a banking relationship with them.
So if you have a mortgage, make sure you’re not causing yourself issues with this by switching first!
Any questions?
If you have any questions on switching banks, or have had experiences good or bad when switching we’d love to hear from you! Just leave us a note in the comments below.
And that’s it!
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