You might still feel that you are more likely to divorce your spouse than change your current account (according to the oft –quoted adage) but a significant 1.1 million people have taken the plunge and switched to another bank in the past year. And the majority of these – more than 300,000 – moved to just two banks – Santander and Halifax.
According to industry figures released last week, in the year to September 2014, the first full year of speeded-up current account switching, the Spanish-owned banking giant made a net gain of 170,551 customers. This put it slightly ahead of Halifax, which offers cash to switch and which made a net gain of 156,639.
Only one other bank, Tesco, won over more customers (just shy of 2,500) than it lost and one building society, Nationwide, made a net gain (45,000 customers). All the other banks lost customers, with the biggest loser being Barclays, which witnessed a net loss of more than 83,000 accounts.
“This growing confidence [in switching], along with small sprouts of competition, means that we are now seeing people starting to vote with their feet when they’re unhappy,” said David Mann of comparison website uSwitch.com. “Hopefully, this behaviour will lead to a virtuous circle, where banks have to stay on their toes and continue to offer better deals.”
So have more than 300,000 people made a wise move making the exodus to Santander and Halifax, or is there something better out there?
In a nutshell
The big appeal of Santander’s 123 account is the amount of interest it pays on balances in credit (up to 3%), combined with the cashback it offers when you use it to pay a wide range of bills including utilities, council tax and your mobile phone. Santander is the only current account to reward customers in this way and, while these incentives are attractive, they make the account difficult to compare at a glance with accounts from other banks.
The way it works is that for balances of £1,000 or over you earn 1% interest; on balances of between £1,000 and £2,000 you earn 2% and on balances over £3,000 up to £20,000 you earn 3%.
You earn 1% cashback on water and council tax bills and on the first £1,000 you pay towards a Santander mortgage each month.
You earn 2% cashback on gas and electricity bills and 3% on mobile and home phone bills, broadband and paid –for TV packages. To qualify for the account you have to pay in £500 a month and set up two direct debits. You also have to pay £2 a month to have the account.
Halifax’s Reward account, on the other hand, has a relatively simple structure, paying £125 to switch to it and £5 a month on balances in credit. To get the £5 a month you must pay in at least £750 a month, pay two different direct debits and stay in credit.
What do I get?
The Santander account becomes more lucrative the more money you have in your account, up to £20,000 when it stops paying interest. This is why, in recent years, thousands of people have opened accounts such as the 123 account to use them as savings accounts. The interest rate on balances over £3,000 is significantly higher than anything you would get from an instant access savings account. If you keep £20,000 in the account, you will earn £480 a year (once 20% tax is deducted).
There is nothing to stop you, therefore, opening a Santander account as a savings account while retaining your existing account as a primary current account.
Don’t forget though that have to fund the account with £500 a month and set up two direct debits.
However, the benefits increase if you also use the account to pay your bills and thereby gain cashback. You can find out how much cashback you could potentially earn by entering your monthly spend on various bills into the calculator on Santander’s website.
The calculator will also work out the interest you will earn on your average balance so this will give you an overall figure to compare against the gains you would make annually from other accounts.
The Halifax account tends to come out as the best option for those who remain in credit each month but whose balances are smaller, particularly in the first year as Halifax will give you a £125 payment as a sweetener for switching.
According to Andrew Hagger of moneycomms.co.uk, who also acts as an occasional consultant for a number of banks, if you are only interested in the interest paid on balances in credit and not on the cashback, you need to have more than £3,500 in the account each month to make Santander the best bet. At this tipping point both Halifax and Santander pay £60 net. On balances less than that amount, Halifax pays more.
“However, Santander 123 could still prove a more viable option on smaller balances if you also make use of the cashback incentives payable on household direct debits,” he says. “It just shows how hard comparisons can be for the man on the street – there are so many ifs and buts.”
Other options worth considering include Nationwide’s Flex Direct account, which pays 5% interest on balances up to £2,500 for the first year only, Lloyds Club account which pays tiered interest of up to 4% on balances up to £5,000, TSB’s Classic Plus, which pays 5% on balances up to £2,000 and Tesco, which pays 3% on balances up to £3,000.
If you are regularly overdrawn it will almost certainly be worth looking elsewhere. Both Santander and Halifax charge a daily fee, rather than an interest rate, for overdrafts – and this usually works out more expensive.
How it works
We have taken the example of three people who use their accounts in different ways but each with a £1,500 a year council tax bill, a water bill of £240 a year, an energy bill of £1,250 a year and a phone/mobile/broadband/TV bill of £1,000 a year.
We looked at how they would fare with four of the accounts: the Santander 123 account, the Halifax Reward account, the TSB Classic Plus and the Tesco Bank account.
The calculations take into account the £24 annual fee payable to the Santander and the £72.40 in cashback the above bills would generate. The number crunching was done by moneycomms.co.uk.
■ Person 1: someone wanting to use their current account as a savings account
Jim has a £10,000 average balance but pays all his bills from a different account (so will gain no cashback from Santander). Over a year Jim would gain £216 in interest with the Santander, £60 with the Halifax (excluding the one –off £125 switching incentive), £80 with the TSB and £72 with Tesco.
■ Person 2: someone always in credit but not with a large balance
Pru has a £1,500 average monthly balance after paying all her bills from the account. Over one year she would be £60.40 better off with Santander, £60 better off with both the Halifax and TSB and £36 better off with Tesco.
■ Person 3: someone with a small balance regularly dipping into the red
Brian has a £750 average balance and pays all his bills from the account but also goes overdrawn five times a month by an average of £200. Over one year he would be in the red by £11.60 with Santander, £60 with the Halifax, £48 with TSB – but he would be in credit to the tune of £12 with Tesco.
How easy is it to switch?
Since September 2013 the process of switching banks has been streamlined, with the industry guaranteeing that you can be out with the old and in with the new within seven working days.
All you have to do is to contact the bank to which you wish to switch your account, and its staff will arrange everything. You don’t even need to talk to your old bank, and some banks will allow you to do the whole thing online. Previously, each bank had its own way of transferring accounts, which often led to mistakes, delays and disputes.
Once you have signed up, all the payments – in and out – of your old account will be automatically switched over to the new one. Your employer, for example, will be notified by your new bank, and your payments will be automatically switched over to your new account.
The Current Account Switch Guarantee says that any charges or interest incurred on your old or new account due to a failure in the switching process will be refunded. The bank will also have to ensure your credit rating is not affected.
Find out more at theguardian.com/money/seven-day-switching
A hidden danger of switching accounts
An unforeseen problem you might come across when switching accounts is gaining access to your old statements, something you will need if you are applying for a mortgage, for example.
Some banks insist that you come into a branch to pick up your statements once you have closed your account with them and some of these will charge up to £5 per statement.
“When moving current accounts, it wouldn’t occur to most people that it might have an impact on access to their financial history,” said Judith Donovan, chair of the anti-digital campaign group Keep Me Posted, which carried out the research.
Nationwide, for example, will only allow you past statements in you visit one of their branches and will charge you £5 per request. HSBC will let you request paper statements over the phone but you will then be charged £1 a page.
The easiest way to avoid all this is to print off all the statements you think you might need before you switch.
