There's a bank account price war. They're desperate for switchers - paying cashback on bills, 5% savings, or just bunging you cold hard cash. Yet just 2% of people have switched in the last year. Unless you're 100% happy with your bank, check now if you can gain.
The contest has stretched far beyond traditional banks. Even M&S wants to be, well, the M&S of banking. It’s just launched its first fees-free account.
In fact so much so, it’s willing to bribe you with a £100 voucher if you switch.
So here’s what you need to know about the best fee-free bank accounts…
1. 7-day switching means it's now mostly no hassle
The 7-Day Switching system now moves your direct debits and standing orders, closes your old account and ensures payments made to it get forwarded to your new bank - all set up within seven working days.
2. £100 switching bribes galore
If they’ll pay you to switch, unless there’s a compelling reason, grab the cash. Though you'll need to pass the credit check and genuinely switch to get the money…..
- The new www.marksandspencer.com account gives £100 on an M&S gift card if you switch, one reward point for every £1 spent at the store, a £100 interest-free overdraft and doesn’t require you to pay a minimum amount each month.
While decent for regular M&S shoppers, basic rate taxpayers will need to spend £500/mth there for it to beat Halifax and its bank's service is untested compared to First Direct.
- The www.firstdirect.com account has smashed every customer service poll I've done, 92% rate it 'great'. New switchers get paid £100 cash, a £250 0% overdraft and a linked 6% regular saver account. The min monthly pay-in is £1,000, equivalent to paying in a £13,400 plus salary.
- The www.halifax.co.uk Reward account gives £100 cash to switchers and pays a flat £5 (after basic rate tax) each month you're in credit. Avoid its costly overdraft though. The min pay-in's £750/mth.
3. Santander wins my ‘most innovative account’ pick
While technically not fee-free - www.santander.co.uk 123 account only charges £2/mth fee and for most this is dwarfed by what it pays back. While Santander was once known for poor service, the 123 account is our second highest-rated, with 75% saying it's great. The minimum pay-in is low too, at £500/mth (equivalent £6,000 salary).
- 3% AER on savings: £3,000-£20,000. This smashes the top normal savings at 1.5%. While a few banks pay more, it's on far smaller amounts.
- Up to 3% cashback on bills. Pay by direct debit and you get 3% cashback on mobile, phone and broadband; 2% on energy; and 1% on water, council tax and Santander mortgage payments.
As Kelly tweeted me (@martinslewis) "I'm getting about £18 per month back after my fee - fantastic. £6 just for my mortgage."
4. Switch bank and earn 5% savings
A range of top fee-free bank accounts now offer high savings rates as loss-leaders to get you to switch to them – such as TSB for up to £2,000 at 5%, for up to £5,000 Lloyds is 4% and for up to £20,000 (see above) Santander is 3%.
If you’re really clever there’s a way to work it to open multiple accounts and bag the interest without switching. See www.moneysavingexpert.com/savingsloophole for a step-by-step guide.
5. Slash overdraft costs
An overdraft is a debt like any other. The key is to cut the interest so you can clear it quicker. There are two main choices… - Switch to a 0% overdraft. www.firstdirect.com offers £100 to new joiners and a £250 0% overdraft (min pay-in £1,000/mth). www.nationwide.co.uk FlexDirect account gives a one-year no-fee overdraft (amount depends on credit score) but it only lasts a year. So use that time to clear it. Full info in www.mse.me/overdrafts.
- Or shift it to a 0% credit card. A few specialist credit cards offer 'money transfers', where it pays cash to your bank to clear your overdraft, then you owe it instead. The longest is 31mths 0% with a one-off fee of 4% of the amount transferred. It’s hugely powerful and cheap, but needs to be done right, so please see full best buys and instructions at www.moneysavingexpert.com/moneytransfers
6. Get an ethical account
And it won’t even cost you extra. Here, we factor in both finances and the rating given by Ethical Consumer evaluating behaviour on the environment, human and animal rights, politics and where they invest.
Despite its recent scandals, the www.co-operativebank.co.uk is still rated one of its top picks on ethics, it pays £100 to switch to it and donates £25 to one of seven charities.
Also try www.nationwide.co.uk, mentioned above, and www.nandp.co.uk, whose debit card allows cheap spending abroad. Or for a real change, find a credit union - a local savings and loan non-profit co-operative, 25 of the 500 offer current accounts. Find one near you www.abcul.org.
7. Couples do it better together...
As each bank account needs a minimum pay-in to get it, if you're a couple living together in a trusting relationship, together you can max the gain by choosing your bank together.
For example, one of you can get a www.santander.co.uk 123 current account, using it to pay all the bills to get cashback, and put your savings in there. The other could get www.firstdirect.com to get the free £100 and top service.
8. What to do if you can't get a bank account
You need pass a credit check to get all the accounts above. If you can't get an account, provided you've got ID you should still be able to get a basic no-frills bank account.
Ask for the specific account by name to avoid them giving you the wrong forms and rejecting you. Top options include Barclays Cash Card and Co-op Bank's Cashminder (not avail to bankrupts). Even though they've no overdraft, if you try to spend more than you've got, they can still hit you with a penalty. Beware - manage them carefully.