Be an unfaithful banker... how to switch banks

We like to think that we are discerning and would not put up with a poor deal.  But more than two thirds of us put up with a lousy deal from our bank.

The ‘big four’ banks - Barclays, RBS/Natwest, Lloyds TSB and HSBC claim around 25 million current account holders – that is seven out of ten of us.  

So why change?

If you think the interest rate paid on your current account is irrelevant because there is so little money in it then think again.  Switching from the lower levels of 0.1% to around 3% could save you the price of a bottle of Champagne in a year, even if you spend everything you put into the account each month.

This may not sound much but why should the bank have even an extra penny from you?  Put it this way: if all of the ‘big four’ banks upped their standard  0.1% interest rate to match the best rate available, they would be paying out an enormous £500 million to their customers every year.  If Alliance & Leicester, Smile, Abbey National, Intelligent Finance, Cahoot, Zurich Bank and others can all pay at least 3%. then what is stopping the big boys?

If you have an overdraft then you are even more likely to profit from a switch. Research from Halifax reveals that more than 11 million people have an authorised overdraft with one of the big four banks, paying an average interest rate of 17.5% EAR (Effective annual rate). Halifax, for example, has a rate of 8.9% EAR.

See below for current best rates on accounts and overdrafts.

The direct debit concern disappears

Direct debit worries are no longer an excuse for not switching.  In November 2001, the banking industry introduced new automated swap systems to improve the speed and accuracy of this process so that direct debit instructions will be switch automatically.  Plus, banks now operate under a voluntary code which requires them to pass account details to the new account provider within 10 working days.

Make the switch

Time and timing is key.  You may be tempted to close your current account immediately after a particularly bad experience with your existing bank but this is likely to do you more harm than good.  For a stress-free switch, aim to make the move within at least a month.  Your bank is likely to need some notice, as are the companies with whom you have direct debits.  But your new bank should have a system in place - usually with telephone support and a pack -  to help you through each step.

Top switching tips:

STEP ONE: Be focused. Write down all the things abut your bank that you are not happy with - this could be anything from interest rates and charges to poor customer service and mistakes.  This should give you a good feel for what you want from your new bank.

STEP TWO: Shop around.  Asking friends and relatives is helpful to a point but remember that everyone’s finances are very different and whereas someone with pots of money may be very happy with Bloggs Bank, someone needing a loan and better credit facilities may find Bloggs is not interested.

STEP THREE: Open up. Once you have found your new bank, open an account.  Make sure you tell them that you will be switching from another bank so that they can help you make the move. Don’t forget to request the transfer of any loans. overdrafts or others debts in your application.  Wait until the new account is up and running before you do anything else.

STEP FOUR: Make contact.  The companies with whom you have standing order or direct debit arrangements may only accept the new account once notified by you - rather than the bank - as a security measure.  Ask them to send new direct debit mandate forms for you to complete.  Make sure that you set the dates for the new mandates so that the bills are paid after your salary enters the account.  

STEP FIVE: Redirect your salary. Most importantly, write to your employer with the new bank account details so that your salary can be paid in.  You may find it best to do this just after your monthly salary has been paid, to allow plenty of time for the change to be made.  If you have other regular payments into your account - such as share dividends, make sure you get these changed too.

STEP SIX: Transfer your financial details: Ask your new bank to automatically transfer your standing orders and direct debits.  They should have a system in place to do this with cooperation with your old bank but there may be some more forms to sign before it is finalised.

STEP SEVEN: Write to your old banks asking them to cancel your standing orders and direct debits and specify the dates for each cancellation to take effect.

STEP EIGHT: Once you are happy that your new account is up and running and your financial arrangements have been successfully transferred, you can closed down your old account by notifying your old bank in writing.  Return your plastic cards and unused cheques and request the bank to transfer your balance to the new account.  You may have to keep the account open if you have debts that have not been transferred to the new account.  It is always worth finding out whether your old bank has a system which registers the reason for a customer leaving the bank.  If so, it is your chance to have your say.  There may seem little point if you will not benefit from any changes they make but it is the only way that banks will get the message that people are not afraid to switch.
Finding the best deal...

A good starting point is the website set up by Which? -  It is packed with information to help you make the switch and compare accounts.

These current accounts feature at the top of the current independent Moneyfacts listings (

Cahoot - 3.64%
Intelligent Finance - 3.15%      
Alliance & Leicester      Premier - 3.10%      
Smile - 3.00%
Abbey National - 3.00%

Source: Moneyfacts as at 16 November 2002.  Interest rates listed as gross.

For authorised overdrafts, Moneyfacts lists the following deals at the top of its charts but remember you may also be charged for the service.  (EAR = Effective annual rate):

Alliance & Leicester      - 0% introductory rate for 12 months, then 0.79% pm (9.9% EAR) on condition that you pay in at least £500 per month.

Cahoot -       0.565% per month (EAR: 7.00%)

Intelligent Finance - 0.673% per month (EAR: 8.39%)

Abbey National  - 0.70% per month (EAR: 8.70%)(Transferred current accounts offered zero % on authorised overdraft for an introductory period on condition of £1,000 per month funding).

Halifax - 0.71% per month  (EAR:8.90%) on transferred current accounts up to £2.5K interest-free authorised overdraft for 120 days on condition of £1,000 per month funding.

Nationwide Building Society - 0.79% per month (EAR: 9.90%)

Source: Moneyfacts as at 16 November 2002


War Hero
I agree with FS - make the switch. I have to an internet bank and it has been a great success.

Interest on those rare occasions when in credit  :) and the main bonus is that you are in far better control of your financial affairs.

Get away from the main street banks and enjoy !

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