Banks step up the pace in battle for current account switchers

Under the seven-day switching guarantee, now two years old, the customer agrees the move date with their new provider. All payments going in or out are automatically transferred from the old account to the new one, and any payments accidentally made to or requested from the old account are redirected for 36 months.

If anything goes wrong, any interest or charges incurred on either account should be refunded.

Charlotte Nelson, finance expert at Moneyfacts.co.uk, says: “With the switching guarantee scheme firmly in place, current account customers no longer have to put up with high charging accounts or poor service, and can instead vote with their feet.”

Nicolas Frankcom, money expert at uSwitch.com, said: “Competition in the current account market is hotting up, with more banks bringing in switching incentives and lots of accounts offering high interest on balances.”

Tesco Bank recently upped its offer, while next weekend RBS is to enter the fray with a new Reward account.

The main gainers under the seven-day guarantee have been the Halifax Reward and Santander 123 accounts. However, Santander has announced that from January it will increase its monthly fee from £2 to £5, meaning customers may want to think again.

Kevin Mountford, head of banking at MoneySupermarket.com, said: “Some account holders may find this is no longer best value for money. However, the account still offers up to three per cent in-credit interest – a very decent amount as long as there is enough money in the account to avoid the monthly charges cancelling it out.”

Santander 123, which requires monthly funding of at least £500 and two active direct debits, pays one per cent interest on balances over £1,000, two per cent over £2,000 and three per cent between £3,000 and £20,000. Someone maintaining the maximum balance could make £420 a year after basic rate tax and increased fees.

But most people can’t afford to keep anything like £20,000 in their current account. Moneysupermarket calculates maintaining a balance of £4,500 will earn £135 interest over a year, making the profit £48 after tax and fees. This is equivalent to 1.66 per cent interest, meaning it is more lucrative than a best-buy savings account.

The comparison service says anyone with less than £4,500 would be better off with ICICI Bank’s HiSave SuperSaver account, which pays 1.65 per cent.

Santander 123 also gives one per cent cashback on water and council tax bills and the first £1,000 paid to a Santander mortgage, two per cent on gas and electricity bills and three per cent on mobile and home phone bills, broadband and TV packages.

For account holders who will be out of pocket after the fee increase – and those yet to switch from other banks – it is an excellent time to look at the alternatives, as there are some very attractive options.

Halifax Reward, which is offering a £125 incentive to switch before 18 October, pays £5-a-month tax-free to customers who deposit at least £750, use two direct debits and stay in credit. This adds up to possible earnings of £185 in the first year. The account also gives up to 15 per cent cashback on spending with selected retailers.

Nationwide’s FlexDirect, which requires a minimum monthly deposit of £1,000 and two direct debits, pays one per cent on balances up to £2,500 after the initial 12-month period at five per cent. This could be worth £100 in the first year after basic tax. Meanwhile, for those who need to borrow, there is a 12-month interest-free overdraft.

Anyone moving to FlexDirect from another provider can earn an additional £100 by doing it via Moneysupermarket.com.

Clydesdale Bank is offering a £150 switching incentive. It has a £1,000-a-month minimum funding requirement and pays two per cent interest on balances up to £3,000. This could be worth an additional £48 after tax, giving total first year earnings of £198.

Lloyds Bank’s Club Lloyds account, which is free to those depositing £1,500 a month, pays tiered interest rising to four per cent on balances between £4,000 and £5,000. Anyone able to maintain the maximum balance could earn £160 a year after tax.

TSB’s Classic Plus has a £500-a-month funding requirement and pays 5 per cent on up to £2,000, potentially worth £80 after tax. It will also pay 5 per cent cashback until the end of 2016 on the first £100 of contactless purchases made each month, making a total potential gain of £140.

Tesco Bank, which recently removed its £5-a-month fee for those paying in less than £750, gives three per cent interest on balances up to £3,000. This means someone keeping the maximum balance all year could earn £72 after tax. There are also Clubcard points on debit card spending.

The new RBS/NatWest account, available from next Saturday, will cost £3 a month and is not paying any credit interest. . But customers will be able to earn three per cent back on seven types of household bill paid by direct debit. The bank says anyone paying eligible household bills of more than £100 per month will make a profit and that on average, annual gains will be £90 – and there is no limit on the cashback that can be earned.

If quality of customer service is your main concern, First Direct, which is offering a £125 switching incentive (£150 if done through Moneysupermarket), is rated as the UK’s best bank by consumer organisation Which?

CASE STUDY

Laura Fisher opened a Nationwide FlexDirect account just before she got married.

The architectural assistant from Cowdenbeath said: “The 12-month interest free overdraft and five per cent credit interest both attracted me.

“The overdraft gave me to the opportunity to pay up front for things for the wedding and then pay the money back gradually without having to take out other credit.

“And when I was in credit, I was getting interest – every penny counts when you’re getting married.”

Laura found switching to the account, which she now uses to pay her regular bills, very easy. She added: “None of my direct debits were affected.”

She has also now opened a Nationwide FlexPlus packaged account, which costs £10 a month.

She said: “I use it for general spending and get three per cent credit interest. We used the free worldwide travel insurance when we went to Canada and the Maldives.

“It also gives commission-free withdrawals abroad, which was very handy, and free mobile phone insurance.”