There’s something about switching financial products that just seems like too much hassle - especially when it comes to current accounts.
Official figures this week show that the number of people switching banks is still pretty low despite a huge drive to enable people to be with the right bank for their needs with the launch of a switching service.
There are around 70 million active current accounts in the UK, but only 3.5 million users have switched since 2013. The Current Account Switching Service requires banks to complete any switch of a current account customer within seven working days - including the transfer of all direct debits and cash.
According to the service, awareness levels of the scheme reached a record high of 78%.
But people seem reluctant still to move banks.
Reluctant to make the change
Andrew Hagger at Moneycomms says: “I'm not surprised the figures are so low as it's difficult for customers to work out which bank account would be best for their circumstances - if you don't have that confidence that you'll be better off then it's no surprise that people will stick with the account they've got, even though it may not be the most suitable.”
While the bank takes care of your switch, your job is to choose a new account if you’re not happy with your own bank. Many have suffered poor customer service or simply object that no interest is paid at all. The Competition and Markets Authority (CMA) estimates some customers are losing out on £92 a year as a result of being with the wrong current account provider.
Banks to consider if you're thinking of switching your accounts
There are plenty of decent current accounts to consider if you’re thinking of switching.
Hagger says: “HSBC's Advance account and First Direct's 1st account do not pay an interest rate but both offer generous switching incentives. HSBC offers new customers £200 if they switch and stay and First Direct pays £100.
If you’re after an overdraft with low charges, look at First Direct which offers £250 free (subject to conditions) and then charges 15.9%. Alternatively, the Post Office is cheaper, charging 14.6%.”
If you tend to keep large amounts in your account, Tesco Bank pays 3% on the first £3,000 and Nationwide pays 5% on first £2,500 but only for the first year.
How to switch a bank account in three simple steps
Should you change your ISA provider?
It’s not just current accounts that have their own switching service. ISAs come with rules to ensure a simple switch to encourage savers to chase the highest paying accounts. The rules state that any move should be completed within seven working days and that any loss of interest due to delay should be paid up.
However, there have been many reports of savers suffering delays and administration errors. There were 1,200 complaints to the Financial Ombudsman Service about cash ISAs in 2015-16 and many related to the length of time it took to transfer an ISA or, in some cases, to transfers that never happened. The next set of figures for the current year could be higher.
The good news is that the British Bankers Association, the Building Societies Association and Tax Incentivised Savings Association have agreed that from 2017 a minimum of 80% of cash ISA transfers will be carried out within seven working days. ISA providers will be required to publish details of its performance against the target quarterly, starting in April.
Before moving your money, check there are no restrictions, such as being within a fixed rate period or if notice is required.
Then when looking for a new home for your money, make sure that the new provider allows you to “transfer in”, which means that you can transfer money from previous ISA years. Some opt just to take “new” money.
If you are free to go, it’s time to move. New rules came into play last year that allow savers to take cash in and out of their ISAs without it affecting their tax-free allowance.
Previously, any money you take out of an ISA would have lost its tax-free status. However, not all providers have adopted the new rules. If that’s the case, be careful with how you move your money.
To keep the tax free status you will need to complete an ISA transfer form which gives all the relevant account numbers of where the money is moving from, as well as your permission to move it.
Cash ISA transfers should take no longer than 15 working days.
Next article: How to choose an ISA >>>
For more information on ISAs as an alternative saving option, please click here.