Time to switch your current account? Banks up rewards to lure new customers

·5 min read

Fancy a free £175? If you are hunting for ways to make and save money, one of the quickest and easiest could be to reconsider your relationship with your bank.

First Direct is the latest to offer an unusually generous cash reward to new customers who open a 1st current account. This week it boosted its usual incentive of £150 by an additional £25, the highest amount any bank has paid since March 2020, according to the financial analyst Defaqto.

It’s unusual to see banks launching switching cash incentives during the summer

Moneyfacts’ Rachel Springall

Since the beginning of August, Santander has offered £160 cashback to persuade people to switch, while new Halifax customers can get £150. For those joining Nationwide it is up to £125.

“It’s unusual to see banks launching switching incentives during the summer,” says Rachel Springall, a finance expert at data firm Moneyfacts. She believes they are looking for ways to drum up business at a time when households are particularly concerned about finances.

There are catches, of course. While there is nothing to stop you opening and using several current accounts at once – and it can make good budgeting sense to do so – you need to close an old account to get one of the best-paying new ones, as well as funnel in a decent amount of cash upfront.

To get the full £175 from First Direct, you have to deposit at least £1,000 within three months, and the offer applies only to those who have never had a First Direct account or had not opened an HSBC current account after 1 January 2019.

You also have to use the current account switch service, which will move money, standing orders and direct debits automatically, within seven days. If you have an existing overdraft, you may be able to move this, too.

Jenny Ross, Which? Money editor, says that more people should make the most of their current account. With the new bank doing all the work, she says, “switching has never been easier … and always be on the lookout for better deals”.

The £160 from Santander is available to those who open one of several of their current accounts, including its 123 Lite, which comes with a £2 monthly fee but also gives you cashback on bills, including energy, council tax, broadband and a Santander mortgage, as well as its free Everyday account.

Again, you need to use the current account switching service, move across at least two direct debits and pay in at least £1,000.

Don’t expect the cash immediately. Katie Brain, a consumer banking expert at Defaqto, says some banks are quicker than others. Santander doesn’t pay the cashback until 90 days after the switch.

If you are looking for somewhere to keep an emergency fund, you may find moving it to a current account offering a reward is a more lucrative option than even the best-paying short-term savings account.

Despite rising interest rates, banks have been slow to increase the amount they pay savers, with the average easy-access savings account offering only 0.7%, according to Moneyfacts. That, says Springall, means you would need to save £20,000 to receive £140 in interest in a year.

If you were to put your money into the highest-interest easy-access account, Al Rayan Bank’s Everyday Saver which pays 1.9%, you would need more than £9,000 of savings to match the £175 First Direct reward.

Some current accounts are offering more competitive rates for customers who store significant amounts of cash in them.

Virgin Money’s M Plus, for example, gives you a 2.02% rate on up to £1,000, plus access to a linked savings account that pays 1.71% on up to £25,000.

There are other considerations, too, especially if you think it may take you a while to switch again any time soon. As Springall says: “Those accounts that attempt to draw in customers with a free cash incentive may not be the best overall choice, so it’s imperative to check all the terms to ensure it’s right for them.”It is the smaller, app-based challenger banks Starling and Monzo that topped this year’s customer service survey of thousands of personal and small business current account holders by the Competition and Markets Authority published this week. First Direct came in third.

Challenger banks are outperforming traditional high street names when it comes to customer satisfaction

Jenny Ross of Which?

The results are based on how likely customers are to recommend their bank to a friend, relative or other business, and also cover quality of online and mobile banking, branch and overdraft services.

Royal Bank of Scotland, Virgin Money and TSB rated the worst for personal current accounts.

“Good-quality customer service is always important but it is essential at a time when millions of households are facing extra cost of living pressures and stress,” Ross says.

“These findings reflect Which? research, which found that challenger banks are outperforming traditional high street names when it comes to customer satisfaction.”

You may also want to consider the ethical credentials of your current account. Current account holders with Triodos Bank can see on their mobile banking app every organisation that it uses savers’ money to invest in and lend to, and the positive impact that those savings are making.

Santander online banking on an iPad
There is nothing to stop you opening and using several current accounts at once. Photograph: Ian Dagnall/Alamy