Switch bank accounts to save money: how disloyalty can make savings accounts better amid cost of living crisis

I’ve written quite a bit over the last few years about how you’ll end up paying more if you stick with broadband and insurance service providers. And you’ll get precisely nothing for staying loyal to many banks, energy firms and other key services you enter a contract with.

The good news is people are starting to vote with their feet to get a better deal. The Current Account Switching Service (CASS) has just announced that a record number of people switched accounts in the final three months of 2022 – 376,107 to be precise.

This figure is a major improvement, but still a relative drop in the ocean. Far too many of us are languishing in bank accounts we’ve had for decades, possibly out of a fear of the new or because of worries about potential mistakes during the transfer.

One of the big motivations for switching accounts seems to have been a notable increase in the incentives to do so that banks have made available. I’ve looked at what’s available and I can confirm that switching can be rather lucrative.

So if you’re thinking about moving your current or savings accounts, what do you need to know? Here’s a quick guide.

How switching bank accounts works

The process of switching accounts is actually much smoother than you might think.

When you open a new account, you choose a date for the switch to take place and then your new bank takes care of the rest, including transferring across all of your regular payments. Any payments that go to your old account after this should be redirected too.

CASS guarantees that you’ll be refunded by your new bank if you incur charges or missed interest due to errors. The whole process should take just seven days too.

Banks based in the UK must be regulated by the Financial Conduct Authority (FCA), which means you can go to the Financial Ombudsman Service (FOS) if things go wrong. You can also go to the Financial Services Compensation Scheme (FSCS) if the bank collapses, protecting you for up to £85,000 per person, per bank.

So, if you’re thinking of switching, it’s best to make sure you check that your potential new bank is UK regulated. But what else should you look for in a new bank or building society?

What to know if you’re chasing a cash incentive

If you’re after a cash bonus for switching, then some banks are offering up to £200 for new customers. There are always caveats to be aware of, though.

Some have minimum amounts you must pay in each month (or your wages). Others have rules around regular payments or how long you keep cash in the account for. Watch out for account fees too.

Several financial businesses offer cashback for regular payments. And finally, some banks are offering saving interest rates that are competitive (but check how long the rate is fixed for).

Martin Lewis’s MoneySavingExpert has some great comparisons of all the options so you can find the best deal for you.

How to take advantage of savings accounts

When I wrote about rising savings rates back in October, I had a huge response from readers. It’s clear that many people have money saved but are unsure about what to do with it.

One of the few advantages of rising interest rates is the increase in savings rates. However, some of my expert colleagues are suggesting that the best rates of interest might be ending soon. So, now is the time to weigh up what you want to do with your cash.

With savings, the main things to consider is when you are likely to need access to your cash should an emergency or financial necessity arise. Savings rates increase the longer you ‘lock in’ your money for.

So, if you don’t touch your cash for a few years, you’ll get a better rate of interest. Some of these notice or fixed accounts lock in your money for just a month or even seven days.

Bear in mind though that these rates can change and will drop if inflation stabilises and reduces. Looking at the latest rates, one-year fixes are going for up to 3.75% and five-year fixes are hitting 4.5%. But remember you may lose out if you take out the cash early.

Martyn James is a leading consumer rights campaigner, TV and radio broadcaster and journalist.