Incentives to switch current accounts tempting, but logical?

By Marianne Curphey

Banks want your business, and competition for new customers is heating up. Many of the high street banks offer generous incentives to encourage you to switch to their accounts. These offers may sound tempting, but beware that they could come with pitfalls and strict requirements.

The switching process is simpler and quicker than it used to be. Since September 2013, banks have had to streamline the process under the "seven day switching" rule, known as the Current Account Switch Guarantee. All you need to do is open a new account and your new bank should transfer all your details across. It should move across direct debits, salary payments, and all your other regular bills and outgoings.

As of early 2016, M&S Bank is offering a £100 M&S gift card when you switch to its Current Account, plus an additional £10 gift card per month for up to 12 months if you stay. In all, it's equivalent to £220. Halifax is offering a £125 cash incentive when you switch to its Reward Account, plus a further £5 a month if you pay in £750 a month, pay out at least two direct debits and stay in credit -- that is, you don't go into overdraft.swap-current-account

Some current accounts also come with debit cards that earn you rewards when you use them, which can sweeten the deal if your current debit card doesn't come with rewards, or if the other bank's rewards are better than yours.

Downsides to switching accounts
Regardless of what enticements a current account offers, you need to pick an account that works for you, rather than being blinded by the cash incentives, says Andrew Hagger, founder and director of MoneyComms. 

Furthermore, consider that you might not qualify for some of the rewards if you are not in credit, or if you don't have enough direct debits leaving your account each month, as with Halifax's requirements for receiving the additional £5 reward per month.

"Halifax's account is great for people who are in credit, even with relatively small balances, but if you go overdrawn you lose the £5 a month and you pay £1 a day in overdraft charges," Hagger says. Monthly overdraft fees and a high Equivalent Annual Rate (EAR) -- the interest charged if you overdraw on your current account -- can wipe out any benefits or rewards, he says.

"If you are regularly overdrawn then it is going to be much tougher to compare all the current account incentives and offers because of the array of differing charging structures and tariffs," says  David Black, director of DJB Research.

Finally, you may find that the rewards aren't actually worth your while. For instance, you can only use the M&S gift cards at M&S, and there is no cash equivalent. With debit rewards, you may find they are not generous enough to make a significant difference to your income.

Can you - and should you - have more than one current account?
You may have to close your old account when you switch. For example, Halifax requires this as one of its terms and conditions for opening a new account and receiving the cash reward.

"It's quite common for banks to want you to use their switching service as a requirement of their deal," Hagger says. "They don't want you to keep lots of accounts open and then return to your old one once you've enjoyed the initial cash incentives."

However, Black says it is possible, in some cases, to have two accounts open at the same time, and transfer across the monthly sum required to qualify for the offer.

"However, you do often need to have direct debits leaving your new account, so this might make things more complicated," he says. You are unlikely to qualify if you are transferring from a savings account to a current account run by the same bank.

In any case, you likely want to keep your money in one place and not worry about moving it around too much, even if there is an incentive involved.

"It is better to match the account with your lifestyle and the way you run your finances," Hagger says.

See related: Will debit rewards suffer cutbacks, too?, How do banks benefit from long balance transfer offers?

Published: 10 February 2016