Recent changes designed to make it easier to switch current accounts have seen a surge in the number of people looking for a new bank.
And experts say that as well as being able to shop around for better customer service, consumers can maximise the returns on their savings by making the switch.
Interest rates have been in the doldrums for years, with very few savings accounts keeping up even with inflation. An increasing number of current accounts don’t pay any interest at all.
But some current accounts are now offering rates better some savings accounts.
The Current Account Switching Service came into being in the second half of 2013, making it easier to change banks and guaranteeing a stress-free switch within seven days.
During the first six months of the scheme, the Payments Council reported a 14% increase in the number of people changing accounts, and more recent data from Gocompare.com suggests that 6% of all current-account customers have switched since the initiative began. Traditionally, people have been more likely to get divorced than switch banks, so the trend is welcome news for consumer advocates.
“The new seven-day hassle-free turnaround is making it easier for people to move their bank or building society account, and undoubtedly many people will save themselves money by switching accounts,” said Matt Sanders, of Gocompare.
“Since the introduction of the new rules, we’ve seen banks and building societies offering a range of incentives – from a £125 switching bonus to cashback cards – to entice new customers through the door. Many people find these offers of ‘free money’ attractive and are switching accounts.”
Of those who have switched, Gocompare found that about 40% of them were attracted by better deals elsewhere, while a quarter of them changed because of poor service.
Kevin Mountford, head of banking at Moneysupermarket.com, said: “Providers are stepping up their offers and increasing competition in the market.
“As a result, there have been a number of tempting new product releases in the past few months which, combined with the fact that it really does take just one week to change accounts, should encourage savers and current-account holders to start thinking about switching and taking advantage of what is available on the market.”
As well as one-off “welcome” payments for new customers, some banks pay interest of up to 5% on account balances.
“Easy-access accounts paying 1.5% interest don’t look so attractive compared with the leading current-account interest rates of 5%,” said Mr Mountford.
“Therefore, current accounts should not be ignored when it comes to shopping around for the best rate – especially as providers are also offering cash incentives to those who switch.”
As ever with financial products, however, make sure that any new account is right for you. It is pointless switching to a bank that pays decent credit interest if you are regularly overdrawn – instead, you should look for a bank that offers a competitive overdraft rate and a low fee.
Michael Ossei, an analyst at Uswitch.com, said: “We’re really encouraged [that] consumers are finally feeling confident enough to break free from the shackles of their old banks and move to a better deal.
“The challenge facing the industry now is how to make competition work harder. Instead of the Big Four – Barclays, HSBC, Lloyds and RBS – winning customers thanks to their hefty advertising budgets, we want to see the likes of TSB, Tesco, the Post Office and Metro Bank gaining a larger share of the market.”