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I’m a huge fan of moving from a bank that does nothing for you to one that will give you something back. But do you need to switch?

The latest figures show 6.3 million bank switches have happened since the 2013 launch of the new system and guarantee, with more than million taking place in 2019 alone.

But with a population of 52 million adults, and assuming some people are like me and switching more than once, that leaves a lot of people who haven’t done it.

Is switching bank a good idea?

So should you switch? Well, first of all, how is your relationship with your bank right now? Is it good? Are you getting any extras from them? If so it might not be the best option to switch to a different one.

You also need to consider the impact of ditching your old bank on your credit score. Having a long relationship with a single financial institution can be really important, so moving bank before you’re about to apply for a mortgage isn’t the best idea.

On the other hand if it’s a one-way relationship with you getting nothing in return, or worse a bad experience, then moving your bank can be well worth it.

Though in truth it’s not so cut and dried. In fact whether your bank is great or a bit of a dud, you could get a better deal elsewhere. For example you could make more money from interest on your account, or you could reduce how much you pay on overdrafts or overseas spending.

Alternatively, you might find that with so banks closing you want to have your cash at a brand that has a branch near you. Perhaps you want to try out some of these new digital app-only banks that promise to help you keep track of your spending.

All good reasons to try something different, and I’ll go through my thoughts on these and more below. You can also listen along via this episode of my Cash Chats podcast.

How switching works

When you perform a full switch you have to close your old account but your payments are moved for you and there are guarantees in case something goes wrong. There’s more information on how this works here.

The thing is, with the majority of the reasons to change bank you don’t actually need to switch. You can just open up a new account. In fact there’s no reason why you can’t open as many as I have.

And there’s a third option, known as a partial switch. With this method you can choose which payments are moved to the new account – and you can keep your old account open.

Whichever option you go for, make sure you check the requirements for the new account to ensure you get the bonus/interest/reward etc. You might need to pay in a set amount every month or have a couple of direct debits come out of the account. Get this wrong and you could miss out.

Reasons to switch

Switching bonuses

These are the big reasons people switch bank. In the last three months of last year the biggest gains from switching were at HSBC, First Direct and M&S with 46,118 people moving over. I don’t think it’s a coincidence that they all offered bonuses.

Now these bonuses, which can range between £50 and £175 are only offered if you go through with a full switch. There have been far less of these recently that at other times over the last few years.

Right now only HSBC and First Direct offer a straight bonus, while Nationwide and TSB are giving away a referral bonus. That means nothing from Natwest, M&S Bank, Barclays, Halifax or Lloyds, who have all offered free cash recently. These can and do change on a regular basis so check out this page where I’m always updating what’s available.

Now that could be a sign that we’ll see less of these incentives going forward. Or we could see the others bring back offers in the coming months.

Personally I would take advantage of as many switching bonuses as possible. Once you’ve got the money you don’t need to stay, you can switch again.

If you’re not keen on closing our existing account to do this then you could just open up an account at another bank and use that as a “switching account” – i.e. one that’s just there to get the bonuses and not your real banking.

Verdict: Switch

Overdraft charges 

You can’t have missed that there’s been a big shakeup in the world of overdrafts. The idea behind the changes was the banks would set a simple rate for the overdraft charges so people could compare and switch if they wanted to get a better deal. Great idea.

But what’s happened is everyone has come in with very high and very similar rates: Here’s what they’re charging or will charge by spring 2020.

  • Nationwide already up to 39.9%
  • First Direct, HSBC and M&S Bank will also charge 39.9% from mid-March, and Santander from April
  • Barclays increases to 35% in late march
  • Natwest, and RBS will charge 35% from the start of April
  • Starling will charge either 15%, 25%or 35%
  • Monzo will charge either 19%, 29% and 39%

The banks say most overdraft users will be better off, particularly those who just dip on occasionally. But people with a large consistent overdraft could see charges rocket.

Either way, it now seems like it might actually be pointless to switch in order to cut your overdraft.

However, there are a couple of options worth considering, and I’d say you should switch to them as they also come with a £100 bonus or referral bonus.

They are the Nationwide FlexDirect account which gives 12 months 0% of around £1500, though there’s no guarantee you’ll get that, or the First Direct 1st Account which comes with a £250 buffer.

However if you have an overdraft it’s better to clear it, perhaps with a 0% money transfer cards.

Verdict: Switch

Interest rates 

Some of the best interest rates right now are via current accounts.

  • Nationwide FlexDirect offers 5% on balances of up to £2,500 for one year (worth up to £125)
  • TSB Classic Plus gives 3% on balances up to £1,500

There are also regular savers offering 2.75% with HSBC, First Direct and M&S Bank. 

Once more I’d say it’s worth switching to all of these, other than M&S Bank right now, as you can also take advantage of a bonus.

Verdict: Switch

Rewards

Many banks offer a monthly reward with some accounts, often in exchange for a fee. Vitally, to get these rewards you don’t need to switch. You can just open up a new account.

The best of these is the Santander 123 Lite, which charges £1 month but in return you get cashback on your bills. It’s capped at £5 though most people will be looking at a profit of £5 or so. It’s possible to run a partial switch which will move over direct debits you select and let you keep your old account open.

Lloyds’ Club account is also a good one to get as you can claim six free cinema tickets or a year-long subscription to magazines such as Empire. In late 2019 Lloyds did offer a £125 switching bonus – the first time it had offered this. There’s always a chance it could come back.

The others aren’t worth a huge amount over the year, and probably not even worth opening an account for. However if you already have these accounts you should be taking advantage of the offers.

  • Barclays Blue charges £4 a month but gives £7 back if you have two direct debits going out (occasionally this is doubled to £14 for new customers).
  • Natwest and RBS charge £2 a month and give £5 back (the cashback on bills was scrapped in February 2020).
  • Co-op Bank offers money back depending on how much you use the debit card
  • Halifax Rewards are worth £2 every month

Verdict: Open a Santander 123 Lite and go for a partial switch, Switch to Lloyds if there’s a bonus.

Packaged accounts 

These premium accounts can come with a hefty fee, often between £13 and £18 a month. But in return you get things like travel insurance and car breakdown cover. The price for these via the packaged account can often work out as a lot less than buying them separately.

But you also don’t always need these extras. I’ve never had one as I’ve never needed each of the parts and it’s been cheaper for me to buy what I did need separately.

Now if you do have one of these already and think it’s good value, do shop around just to check you can’t get a similar but cheaper offer at a different bank.

Verdict: Open if you need one and it’s good value. 

Fee-free spending overseas

Most of the new banks such as Monzo and Starling offer fee-free spending and cash withdrawals overseas. My pick is Starling where there’s no cap on your how much money you can take out each month. And you can just open up this account – there’s no need to switch.

Verdict: Open

Budgeting features 

These new banks also have a great reputation for the budgeting and savings features built into their apps. In fact, Monzo had the second-largest net gain in the last three months, up by 21,576. Which shows how popular they are.

But once more you don’t need to switch to try this out. Open an account, transfer some cash over and see how the features work for you. You can easily perform a partial switch if you want.

Verdict: Open

Bank branch location

Finally, with so many bank branches closing (more will go this year), you might want to move bank to whichever one is still on your local high street. Again, you don’t need to switch for this, unless there’s also a bonus for doing so.

I’d open up the new account, perform a partial switch over and then potentially use the now useless account to harvest as many bonuses as possible.

Verdict: Open

The best bank switching offers

Deals can come and go, so I’ve got a separate page which I change every time there’s a new deal or an old one goes. It includes the best cash bonus incentives, as well as the highest interest rates and other rewards available.

The best bank switching, cashback and interest offers (February 2020)


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