When it comes to saving money MoneySaving Expert Martin Lewis has all the tips. Here’s his low down this week:
HSBC’s hit the headlines for moral failing, but that’s nothing Barclays, Lloyds and others haven’t done in the past. My ears regularly burn with people growling about their bank, yet last year only 1 in 50 people punished theirs by leaving.
Yet now is the perfect time to do it, many banks are salivating for new business, pushing out lucrative perks for switchers on fee free bank accounts.
Here are the 10 need-to-knows…
1. Seven-day switching means it’s mostly no hassle.
Seven-day switching is now over a year old. Within seven working days your new bank will switch your direct debits and standing orders for you and close your old account and make sure any payments to it are forwarded to your new one. I did a snap poll on my Facebook page of people who’d used it – 82% found it “easy and hassle free”.
2. What counts as switching to get the perks?
For most accounts, you usually need to not just open it, but switch. That usually means:
a) You need to pass a credit check, though they’re not normally too harsh.
b) Most require a ‘min monthly deposit’. In reality it’s just how they ensure you pay your income in there. Eg, £500/mth = £6,000 salary.
c) Many require you to have a couple of direct debits set up.
3. Get paid £125 to switch.
Some banks want you to switch so much they will pay you to do so, and this bribe is tax-free. A full list (and some short lived special deals) in www.mse.me/bankaccounts, but here’s a taster:
– Free £125 + £5/mth: www.halifax.co.uk Reward pays you £5/mth if you’re in credit.
– Free £100 + top service: www.firstdirect.com has won every customer service poll I’ve ever done, plus it offers a £250 0% overdraft and 6% linked savings. You must pay in £1,000/mth (equiv £13,500 salary) to avoid a monthly fee.
– Free £100 + £25 to charity: www.co-operativebank.co.uk also gives £25 to one of seven charities.
– Free £100 M&S gift card: www.bank.marksandspencer.com it also has a £100 0% overdraft and linked 6% regular savings account.
4. Top for savings interest – get up to 5%.
Instead of cash bribes, other banks try to suck in customers by paying switchers loss-leading interest rates on savings (taxed like normal savings) to keep you with them.
– For bigger savers 3% interest + up to 3% cashback: www.santander.co.uk 123 is the only one which pays strong rates on a decent whack. You get 3% AER variable interest if you’ve £3,000 to £20,000 in it – more than double the best buy normal easy access savings account.
It has a £2/mth fee but for most that’s more than covered as it also pays cashback on direct debits paid from the account. You get 3% back on mobile, phone and broadband, 2% on energy and 1% on water, council tax and Santander mortgage payments. As Stefan tweeted: “Since the account opened 18 months ago £484.80, 2/3 cashback 1/3 interest. Happy.”
Yet for smaller amounts there are others out there paying up to 5% interest, and if you’re willing to play you can combine them to earn more. Full list and help doing that in www.mse.me/savingsloophole.
5. Which pays more – free cash or the bank savings interest?
As a rough rule of thumb, if you’ve got £10,000+ then Santander always wins. Below that, we need to get a little nerdy…
a) How often will you switch? You could switch annually (or more often) to keep bagging free £100s. To earn more in bank savings needs £3,000+. Yet if you just want one account to stick with, as savings pay each year it wins.
b) Where’d you save it otherwise. The top savings accounts pay 1.4% AER so you can earn that without switching bank. So if bank savings is paying, for example, 3%, then the gain from choosing it as your bank is just 1.6%.
c) Tax. The free cash for switching is tax-free, but interest is taxed like income tax, eg, at basic rate you lose 20% of it (higher rate 40%). So £100 free cash is £100, but £100 interest is £80 (£60 at higher rate).
As you can see there are a lot of variables, but in a nutshell, if you don’t want to regularly switch and have above say £4,000 then the high interest current account wins.
6. The MSE gold medal for bank service.
As we interact daily with our bank accounts, service counts. My latest six-monthly poll closed recently. How much you value service over the pure cash perks above is up to you.
7. How to cut overdraft charges to 0%.
An overdraft’s a debt like any other, so if you often go into the red, cutting its cost makes it easier to clear. www.firstdirect.com has a £250 0% overdraft and you can put the £100 it pays switchers towards it too. www.nationwide.co.uk FlexDirect may give a bigger 0% overdraft, credit score depending, but only for a year (it’s 50p/day after so try to clear by then).
If your overdraft is bigger, a few credit cards will pay them off for you at 0%. Full info on that at www.mse.me/moneytransfers.
8. Free travel insurance accounts.
The www.nationwide.co.uk FlexAccount is fee-free and includes Europe travel insurance for the account holder(s) and crucially this goes up to age 74 – useful as older people pay a hefty whack for travel insurance. You can upgrade to world cover for £40.
9. Fed up with banks? Want something different?
For a real change use a credit union. These are local savings and loan non-profit co-operatives. But while there are 500 credit unions, only around 25 offer current accounts to check if your nearest does go to www.abcul.org.
10. Changing bank doesn’t stop you reclaiming for mis-selling.
You can still ditch, switch, then reclaim if you were mis-sold. For help reclaiming packaged accounts (those where you pay a monthly fee see www.mse.me/packagedaccounts) and if you’re in financial hardship you may be able to get bank charges bank see www.mse.me/bankcharges (avoiding bank charges in the first place is even better though).
Secret Escapes free £25 credit
– If you’re not a member already, sign up for free to Secret Escapes via a special link on VoucherCodes (www.vouchercodes.co.uk/secretescapes.com) to get £25 free credit to spend towards a hotel stay. This is an ongoing offer and the minimum spend is £100.
VisionDirect.co.uk 10% off
– Enter the code LENSES32 online at Vision Direct to get 10% off until Tue 31 Mar. Delivery’s £2.99.
For more information log on to www.moneysavingexpert.com