The battle to attract current account customers is hotting up, with two banks offering £175 “free money”, and a third tempting people with a 10% interest rate.
The payments from Santander and First Direct, and the inflation-busting interest rate offered by Virgin Money, are the latest carrots being dangled in front of potential customers in an attempt to persuade them to switch current accounts.
This “free cash” could provide a welcome boost during the continuing cost of living crisis. However, with some of these deals there are quite a lot of strings attached.
It has been suggested that banks are trying to make it harder for “serial current account switchers” to simply rock up, pocket the freebie and then quit to grab the next offer.
What the offers are and how much is ‘free’ cash
Santander last week announced that people who switched to either its Edge or Edge Up current account would get £175 cash.
These have a fee – £3 and £5 a month respectively – which takes the effective gain, over a year, to £139 for Edge, and £115 for Edge Up.
The bank’s move feels like a response to First Direct’s announcement earlier this month that those switching to its 1st Account will get a £175 welcome bonus. That does not have a monthly fee.
Virgin Money has taken a different tack. It is offering those who sign up for one of three accounts – M (its basic account), M Plus (its standard offering) or Club M (its packaged account) – a fixed bonus interest rate of 10% gross on current account balances of up to £1,000 for one year. That translates into a maximum of £100 interest.
Be aware that these offers, as both Santander and First Direct put it, “can be withdrawn at any time”. Sometimes they are available for a few months, and sometimes it is a few weeks. So if you are interested, don’t hang around too long.
What switching involves, and the requirements
With all three offers, to get the free cash or high interest rate, you have to fully switch an existing current account from another provider using the industry’s Current Account Switch Service (Cass).
This means your balance and regular outgoing payments will be transferred to your new account. The bank you are switching from will close your existing account.
If you have several bank accounts, you could, in theory, apply for all three of the new offers at the same time – but that would involve switching from, and closing, three accounts.
Each bank has its own requirements. Santander says applicants must, within 60 days, complete the full switch, set up two direct debits and pay in at least £1,500. They will receive their £175 within 90 days of starting the process.
With First Direct you have to complete a full switch, including setting up at least two direct debits or standing orders. You must then pay in at least £1,000, make five or more debit card payments, and log on to digital banking, all within 30 days of your account being opened.
You will get the £175 by the 20th of the month after the one in which all the requirements have been met.
Virgin Money requires people to open an account by the end of this month, and then switch and port over at least two direct debits by 26 June. The bonus interest rate is then paid from 1 July 2024 to 30 June 2025.
Who can be ruled out … and why?
Anyone who has previously ever benefited from a Santander switching offer is excluded from its latest deal – which will rule out some serial movers.
Meanwhile, anyone who has previously held a First Direct product can not apply, and ditto anyone who has opened an HSBC current account (First Direct is a division of HSBC) since the start of 2018.
Virgin Money is less strict: you can’t sign up if you have literally just closed one of its accounts (since 30 April).
Are people taking the money and running?
There is evidence they are. NatWest launched a £200 switcher offer in February last year, and withdrew it in September.
Cass figures show that, sure enough, NatWest topped the account-switching table in the period 1 July to 30 September with 94,000 new accounts – but then 50,000 people quit between 1 October and 31 December 2023.
So where did they go? Well, in late September last year, Nationwide launched its own £200 freebie – and an impressive 196,000 people switched to it in the three months ending 31 December. Alastair Douglas, chief executive of the website TotallyMoney, says the data indicates “huge numbers” of people left NatWest and moved to Nationwide, “suggesting some simply follow the money, securing sign-up bonus after sign-up bonus”.
This was likely to be the reason why switchers were increasingly being asked to “jump through hoops,” he added.
What you really get on closer examination
The Santander Edge account is quite well-regarded. It offers up to £20 a month cashback: 1% on selected household bills when you pay by direct debit, plus 1% at supermarkets and on travel costs when you use your debit card (in each case cashback is capped at £10 a month).
You also get access to a linked savings account paying up to an initial 7% on balances of up to £4,000 (allowing you to earn up to about £280 interest in the first year), plus you get fee-free spending abroad with its debit card.
The Santander Edge Up account offers more cashback – up to £30 a month – and the fee-free spending abroad, plus monthly interest of up to 3.5% on a current account balance of up to £25,000, but you don’t get access to the 7% savings rate.
Meanwhile, First Direct account’s main benefits are a £250 interest-free overdraft, access to a Regular Saver account that pays 7% fixed for 12 months, and lets you save between £25 and £300 a month (you can earn up to £136.50 interest), and no debit card fees when spending abroad.
At Virgin Money, the maximum interest you can earn via the new offer, if you keep at least £1,000 in the account for the full period, is £100. However, the M Plus and Club M accounts already pay 2% gross interest. So for those account holders, they would enjoy a 12% rate for a year, and the total interest they would earn would be £120.
The M and M Plus accounts have no monthly fee, but Club M carries a £12.50 monthly charge, which is £150 a year – more than the maximum interest you can earn through the offer. All three Virgin Money accounts automatically come with a linked savings account paying up to 2.5% on balances of up to £25,000, plus zero fees when using the card to spend abroad.
Be aware: a switch can affect your credit score
You can switch bank accounts as often as you like to bag the freebies on offer, but bear in mind that your applications may show up on your credit record, and could affect your credit score.
“The bank might run a ‘hard search’ on your credit file if you’re applying for a current account with an overdraft,” says Alastair Douglas, chief executive of the website TotallyMoney. “That’s because they’re still a type of credit, and the bank will need to check how well you manage your money.”
A hard search is one of the two types of credit check that companies carry out – the other is a soft search, which does not affect your credit score. It is thought most, if not all, of the main high street banks do a hard search.
Too many over a short period can affect your score, and this could cause problems in the short term – if you are planning to apply for a mortgage, for example.
So you may want to think about this before making a number of applications.
