Switching Your Bank Account
It seems most people don’t think about changing bank accounts because they don’t see much difference between all the various accounts, and so are put off doing so. However, if your account is in credit and you don’t receive interest from your bank, or, if you’re over drawn and are being charged a high interest rate for the borrowing, then you could well benefit financially from changing banks.
Start by working out what you want from your bank account, and then compare what’s available. Comparison sites such as Moneyfacts, Moneysupermarket.com and uSwitch can search for bank accounts with best interest rates on overdraft facilities as well as for the interest rate you receive for being in credit.
Look at how you’ll bank and what you want from your bank – do you want to be able to bank online, by phone or in branch? Look out for short term offers such as cashback when you switch accounts, and do remember to read the small print. It might sound boring, but that small print can really make a difference and tell you what you have to do to qualify for the higher interest rate or the cashback payment etc.
Another thing to think about is the ‘faster payments’ scheme. Some banks have signed up to it, and others haven’t. If you want to be able to send money to someone in hours instead of days then look for banks which have signed up to this scheme, and avoid those who haven’t.
Look at one off payment limits too – most banks have a high limit around £10k, but some (Santander for example), have much lower limits (Santander’s is just £300).
Changing banks can take around 3-4 weeks, so make sure you’ve planned for those weeks in advance, and check that the bank will keep you informed about the process.
The Financial Services Authority website has information on it about switching bank accounts and can be quite useful. Also, if you’re account hasn’t been moved after 15 working days (3 weeks), then you should get the bank to chase this for you. It can also be worth asking if you’ll get a free overdraft for the period to cover the switch. For example, if a direct debit comes out of the new account before the money has gone in to cover it than you don’t want to find yourself with large overdraft fees.
The Banking Commission has offered recommendations which if introduced in 2013 as planned, will mean that the process of changing banks will take no more than 7 working days and it will be the responsibility of the bank who you are moving your account TO, to make certain that everything in the process of the changeover goes smoothly.
Is your money safe?
Savings and other bank accounts by British depositors are guaranteed by the government-backed Financial Services Compensation Scheme up to the figure of £50,000. Despite the recent international crises in the financial world, therefore, for the overwhelming majority of this country’s population, your money is remarkably safe.
Although the most recent figures available relate to 2007, the British Bankers’ Association estimate that only 2% of bank accounts held in Britain contain a balance of more than £50,000 and only 4% show a balance that exceeds £35,000 (according to a report by the BBC on the 30th of September 2008). 98% of all deposits, therefore, are safely guaranteed by the Compensation Scheme.
The introduction of such guarantees was not simply the result of the government looking to protect individual savers, however. It was prompted just as much by the finance industry’s desperate need for the capital represented by so many individual savings accounts. In this regard, banks and building societies have found themselves to be between something of a rock and a hard place.
They still desperately need savers’ deposits. But in order to encourage lending between themselves and to individual customers, they also need interest rates to be low – hence the Bank of England’s drastic one and a half percent reduction in its base rate during the final quarter of 2008. The deposit-takers, therefore, are being pulled in opposite directions. On the one hand, interest rates need to be sufficiently competitive to attract the savings so desperately needs; while those same interest rates also need to follow the underlying trend of the Bank of England base rate. The guarantee to individual savers – the guarantee that makes your money safe – is one of the principal factors in helping to maintain competitive rates for savers.
This is reflected in the way many banks and building societies have actually behaved in recent months. Immediately after the announcement of the 1.5% reduction in the base rate, for example, many savings accounts (especially those offering a fixed rate of interest) were withdrawn from the market. In the aftermath, however, the same banks and building societies had little option but to reintroduce new accounts and new attractions in order to attract the savers’ funds necessary to underwrite their balance sheets.
Although there has been an inevitable period of re-pricing, therefore, banks and building societies remain just as desperate for depositors’ cash and have to offer attractive rates of interest in order to get it. As ever, of course, the longer they get to keep such deposits, the more attractive the rates they are prepared to offer. Many fixed-rate savings accounts, which savers agree to leave on deposit for an agreed term (typically for a year), thus, continue to offer a good deal.
Moreover, they represent a good deal for both the banks, which receive the funds they need to stay in business, and the individual customers, who earn not only an attractive and competitive rate of return on their savings, but also enjoy the comfort of knowing that their money is safe.