This piece on why you should consider switching bank account is by The Treasurer from Team Monevator. Check back every Monday for more new perspectives on personal finance and investing from the Team.
Sounds almost too good to be true, doesn’t it? Getting paid a wad of notes to do very little, without a smidgeon of risk.
Yet earning free cash for switching bank account has been ‘a thing’ for over a decade.
Married people are more likely to get a divorce than switch bank account. It’s unsurprising then that retail banks work hand over fist to attract new customers. They hope that once you switch and pay in your monthly salary, your future self won’t bother switching again until the day you die.
Plus, once you’re a customer of theirs they can then turn on the ‘hard sell’. They can promote substandard products – packaged accounts with benefits you’ll never use, or an overly-expensive life insurance policy. They may even get a mortgage application out of you.
Customer apathy is big business in the personal finance world. It can deliver much more than enough to cover any initial switching bribe.
Yet it’s possible to play the banks at their own game, by switching bank account for the sole reason of grabbing the cash incentives.
Switching bank account for fun and profit
Without trawling through years of bank statements, I can’t put an exact figure on what I’ve earned over the years from my bank account switching.
It’s certainly north of £1,000.
First Direct, HSBC, Lloyds, Halifax, NatWest… You name the bank and there’s a fair chance I’ve exploited them.
My biggest bonus was from Clydesdale Bank back in 2017, when it offered an eye-watering £250. At the time I was working with financially astute colleagues. Between us, we would have opened at least 20 accounts.
As none of us kept the account after bagging the free cash, our office must have cost Clydesdale a cool £5,000. Plus a lot of plastic!
Admittedly, there were some hoops to jump through to get the offer, such as having to pay in a set amount over three months. But nothing too taxing. (We’ll discuss how to get past these hoops below).
Once I’d ditched my shiny but sub-par Clydesdale account, I moved my faithless custom to the kind folks at NatWest. I bagged another £125 for my troubles.
I’ve done this time after time, for years. I’ve even scored the same bonuses more than once.
While you almost always have to be a new customer to qualify for a bonus, some banks are more lenient than others when deciding who is and isn’t a ‘new customer’. (Halifax scores highly in this regard.)
Top tips when switching bank account
Let’s assume you haven’t considered switching before and you want to get involved. While it’s an easy hobby, there are a few things worth knowing about.
Tip 1: Open a ‘Mule’ Account
My first tip is to open a separate bank account that you have no intention of using other than to hop to another bank account. In other words, retain your existing bank account and open another for the purposes of making your first switch. In personal finance circles, this is known as a ‘mule’ account.
Take your pick, but avoid choosing an account that pays – or has paid – a switching bonus in the past. This is because once you’ve been its customer, it will be far harder to squeeze a bonus out of that bank in the near-future.
Barclays is my top pick for a mule account. It has never offered a bank switching bonus to my knowledge. Digital banks that enable you to open an account immediately through an app, such as Starling or Monzo, will also suffice. Fintech startups have so far avoided the temptation of directly paying cash to attract new customers.
Tip 2: Learn how to get past those hoops
Once your mule account is set-up, you need to understand that some (not all) banks require you to comply with set criteria to qualify for their bonus.
Often this means paying in a certain amount within one to three months. This one is easily circumvented by paying in the cash and then immediately withdrawing it. I have never yet seen a rule that requires the cash to be kept in the account for any particular length of time after it’s deposited.
A more annoying ‘hoop’ is a requirement to have a number of ‘active’ direct debits – usually two – paid out from the account. This isn’t your ‘real’ bank account, so it poses a problem, right?
Well this again can be circumvented by being creative.
If you’re keen to share some of your easily-gotten switching gains, there are a number of charities that will accept direct debits of as little as £1.
If you don’t want to go down the charity route, look into a savings account. Some enable you to fund your account via a direct debit. Try Scottish Widows or the Post Office. Like this you effectively pay yourself.
Alternatively, Small Direct Debit will set up a direct debit for you for the princely sum of £1 a year. However, do check the bank switching T&Cs1 to see whether it requires the direct debit to be monthly. (Note: I haven’t used this last company so please do your own research.)
Tip 3: Get your head around the myths
Finally, let’s consider some common fearmongering.
Credit score impact: You may be worried that continuous bank switching will harm your credit score. It’s a legitimate concern – reducing your future credit worthiness probably isn’t worth a few hundred quid. So it’s worth knowing that when you apply for a bank account, you’ll undergo a standard credit check. That isn’t the same as the one required if you were trying to obtain credit.
Plus, the search gets wiped after a year. Unless you’re planning to obtain a mortgage or hoping to access significant credit over the next six months or so, opening a handful of bank accounts shouldn’t do any harm.
While it’s rare, you may be rejected for a new bank account. To reduce the chances of this happening, turn down any offer of an overdraft facility.
The hassle factor: The other big myth about bank switching is that it’s too much hassle. But as long as you take the time to read the T&Cs and satisfy the switching criteria, it’s pretty straightforward.
The Current Account Switching Service ensures that once you’ve agreed a switching date with your new provider – usually a date within a week or so – your switch will take no more than seven days to complete. Any payments, direct debits, or standing orders will be moved automatically, which is handy for future switches. And your new provider takes on full liability for any mistakes.
Get your profit antennas twitching
I hope you’re all now itching to get switching!
Currently switching bank account offers are a bit thin on the ground, but I’ll be coming back to Monevator soon to highlight the best deals available.
In the meantime, please do share any you find in the comments below.
In time you will be able to see all The Treasurer’s articles in his dedicated archive.
- Terms and conditions. [↩]
Barclays actually do have a switching offer, and it’s very generous one – unfortunately limited to Premier customers (have to hit 75k income threshold), but you get £250 of Avios points. If you don’t fancy flying with BA, they can be converted gradually into Nectar points and spent in Sainsburys or Argos.
I opened a Starling account as a “mule” account, but they were so good that I stayed! True story.
It’s worth pointing out that Paypal collect money from your bank account by direct debit (if you set it up as sort code + account number, not via debit card). So if you’re in need of an active DD, just set up Paypal to charge your bank account, and pay for something with it.
A few years ago I ventured into a strategy similar to what you suggest, and I have to admit it was a lot of hassle. I automated as much as possible, arranging multiple recurring payments to satisfy their requirements of a minimum pay-in – from Account A to Account B on the 1st, from B to C on the 2nd, and so on – but it was a real hassle to keep them all in sync and make sure that no account gets into overdraft.
I even found out about the savings accounts with the Post Office and Scottish Widows you mentioned, but somehow the direct debits stopped working some months in, and just couldn’t restart them.
Maybe I was just unlucky, but we should keep in mind the complexity and the logistics. Oh, and at the time the banks clearly said you could only apply for the switching bonus only once, so unless things changed I’ll have to sit out this round!
@ Moongrazer – is that definitely right? I used to be able to do that but now it doesn’t look like it’s a direct debit when you try to link a bank account.
There’s something here about setting up a direct debit with PayPal Credit – which is a credit product, not straight PayPal.
Other info on setting up a direct debit via PayPal looks like ancient history.
I’d be very happy if you can tell me what I’ve missed.
A regular has got in touch wondering about the inclusion of Small Direct Debits. As stated in the piece, please do research this yourself as we haven’t used. I’d be interested to hear of anyone’s experience here, too? 🙂
Welcome to the team The Treasurer!
Nice piece, Treasurer. Enjoyed it. Glad you had a support group at work while you were doing this. I always felt like a lone wolf/eejit.
I’m not sure about Small Direct Debits – it’s out of date and not sure who I’m handing over my bank details to. The majority of accounts need a monthly direct debit x2. After paying £2 over to this entity per month, you’re not going to have much left over. I suppose you can just use it to get the bank bonus and cancel.
I use my credit card and investment platform direct debits. The Post Office saver still works with direct debit though.
Is there any info out there about how long it takes to requalify as a ‘new customer’ for each bank after you close the account?
Great article!
I’ve done this a few times myself, and occasionally there has even been a bonus for existing customers (NatWest is the only bank I’ve seen do this) to switch an account. Useful to get rid of excess accounts.
My setup has a main current account, ‘mule’ account, plus a couple of satellite accounts to take advantage of Barclays Blue Rewards/NatWest MyRewards bonuses on a regular basis.
There’s certainly some bonuses to be had if you’re happy putting in the legwork. I can see why not everyone does though.
Thank you for putting this together! As a regular reader of Monevator, I have to ask, do you know how is this taxed? Is it a gift or income or something else?
I just think that life is too short to be using up valuable life energy by swip swopping bank accounts in this way. Someone, somewhere , is actually paying for these ‘free’ cash gifts. It’ll be those people who are paying big overdraft fees.
Basically, it all seems rather close to being a parasite.
No thanks.
So if a supermarket offers you 2 for the price of 1, you put it back on the shelf and say: “No, freebies for me, it prevents me virtue signalling.” Jesus wept.
A hidden benefit for passive investors is that this type of project offers/channels active aspirations in fairly low key and secure ways.
I went full on with this a year or two ago and boosted our household income by c£100 a month – possible as I did the same in the name of my wife etc. Kept it going for a 18months.
It does get very complicated but that keeps your mind off buying into Scottish Mortgage IT at the top and the like (if you’re like me at any rate).
The tax issue is usually covered by fact that money is an incentive not interest or a payment.
You can also funnel cash through children’s accounts.
I always meant to raise this at the time but it felt a bit low rent for Monevator and its loftier focus.
Then of course there’s credit card stoozing. I had £30k on that at my peak, earning c3% on the savings – back in the food old days.
It is all slightly naff BUT how easy is it to get a net £100/month injection of cash just for slogging through some paperwork?
@Andrew Preston
I am not sure there is any correlation between high overdraft fees and the new customer payments. Indeed, high overdraft fees exist because customers regularly use them. I do take your point, however, that doing this is time consuming and perhaps not worth the opportunity cost.
Question on this. I’ve heard that switching closes your previous account – I’ve been told that closing my accounts will have an adverse impact on my credit profile as it keeps the average age of my accounts low? I also don’t have a long credit history, having moved to the UK a few years ago.
@Clara
Some of the ‘credit score’ type services (Experian, Equifax etc) like you to have a longer average length of accounts being open, but if you use a different account to your main one that impact would be limited, but you don’t have a ‘credit score’ in the UK, as each lender will have their own criteria, so I don’t think it makes a huge amount of difference.
As long as you’re using some credit responsibly (paying off credit card direct debit etc), and don’t have a lot of applications for credit happen at once, then most lenders should look at your ability to repay whatever credit you’re applying for.
Starling is not a great mule account. This is because once you leave Starling, either by closing or switching away, you are unable to open a new account for a period of one year (https://help.starlingbank.com/hc/en-us/articles/360007227120-Can-I-reopen-my-Starling-personal-account-). On top of this, you actually have to reopen it by contacting Starling’s customer support. At least with some other banks you can sign up multiple times without them adding other hurdles to the process.
Back when N26 was in the UK, they were even worse – supposedly importing something done in Germany – they refused to open new accounts for five years after one was closed (or some sources say ten years).
It’s all a bit of fun and I have certainly done this in the past. I wonder whether this repeated opening and closing numerous accounts might have some hidden downside somewhere down the road ?
I understand that a couple of American banks are more open than others to having non resident foreign nationals have an account, and I saw this, $225 from Chase bank, and not for switching
https://account.chase.com/consumer/banking/seo?jp_aid_a=T_65596&jp_aid_p=chasehome_3/hero
What I’m not so sure about is that it requires a “direct deposit” which I believe is a US equivalent of Bacs transfer, however I’m not sure if you can do that from a UK account, as I read that might be a “wire transfer” – but I’m not sure?
On the whole I think most US accounts are ones you pay for, and therefore less generous, but I wouldn’t rule it out.
Does anyone know of other foreign banks offering incentives too?
@Matthew sounds like a possible use case for a transferwise multi-currency account to help make the USD transfers?
Great to hear a new voice on Monevator; much as I love the ‘old’ ones!
Once a few more newbies are bedded in, it would be great if Monevator would publish (suitably) redacted profiles/bios for all these new voices. After many years of reading I feel like I more or less ‘know’ TI as TA, but it would be great to find out a little more about the new contributors – background, financial status, philosophy, interests. Keep up the great work. MoMo
I agree this can be a useful source of some additional cash but the timing is sadly a bit late as there is not much out there at the moment. It does seem cyclical, however, so there are sure to be some new offers soon
Thank you @Stu will keep that in mind for other ones
Sadly reading the T&C’s of the Chase one it doesn’t look viable, you have to have the account open for 6 months, it’d be difficult/risky to put in enough in dollars to avoid the monthly fee, and;
“Your direct deposit needs to be an electronic deposit of your paycheck, pension or government benefits (such as Social Security) from your employer or the government. Person to Person payments (such as Zelle®) are not considered a direct deposit”
But open to all ideas anyway.
Anywho, do we have a list of how long you have to be away from a UK bank (or energy or Broadband company for that matter) to be considered a “new customer”? I had to use a different email with talk talk when I switched to them a 2nd time although they didn’t seem to pick up on the phone number being the same (not with them now).
While I’d encourage people to move accounts to find a bank more aligned with their values (and perhaps get a one off switching benefit), I’m a bit more circumspect about doing it regularly for fun and profit – unless you really need the extra cash to make ends meet. I doubt that is true for the majority of Monevator readers.
As another poster said, this is likely to have a knock on effect of increasing costs to longer term customers of said bank – and perhaps to those who are already on the edge. It is also creating more waste plastic (although probably not as much as the Treasurer crows) and wasting other resources.
Love your content generally, but tonally this is a bit of misfire.
Most bank switching incentives are one-off (or at least hard-dated e.g. “to be eligible you must not have had an incentive from us since 01-May-2017” or similar). If there are any recurring opportunities perhaps a subtle hint would be useful to some(!)
Re: energy/broadband, I suppose it can vary by company but 12 months has been enough whenever I was paying enough attention.
I haven’t tried it, but may do.
I think the concerns about this “free money” being passed as costs onto overdrafts to other customers are exaggerated: the banks will see this as part of their marketing budget and will continue to hurl money at this, sport/art sponsorship, stupid TV adverts, etc., whatever we do.
Re: costs to banks, bear in mind that if it’s us that’s doing it, we’d likely reinvest it into assets the bank holds, maybe with pension uplift.
Similar to the idea of US stimulus checks effectively taking money out of the supply chain (ie bond market) to go into consumption (thus inflationary)- here we are doing the reverse, taking money out of consumption and providing financing to businesses generally through investing.
I’m sure the banks know it happens and could tighten up their criteria if they see fit, and to them it’s X likely cost for Y likely increase in profit.
Also the very fact they are able to hand out hundred(s) kind of shows that this is a small slice to them.
Some people choose not to do these things, they don’t care enough to peruse it, they accept paying more. Let suckers fund me, don’t cap overdraft fees, energy costs, etc.
Hi all,
Thanks for all of the comments – really good to see!
@btz, it’s certainly a fair point that some may consider bank switching too much hassle. For me, a few minutes reading some T&Cs is usually worth a £100 or so, but if you’re not familiar with the process or you find setting up the DDs tiresome, then I get that you may find that it’s too much bother.
@The Accumulator, I must admit I haven’t used ‘Small Direct Debit’ myself, but it’s got some fair feedback online. Plus, they use GoContactless to process payments which provides some reassurance. It’s certainly the case that many switching offers require a monthly direct debit, rather than a single yearly payment. However, as you say, you can simply set one up and cancel after it’s done its job.
On Scottish Widows, it appears its ‘Instant Saver 2’ accepts regular deposits via DD. https://www.scottishwidows.co.uk/bank/savings/instantsaver_intro.html
On the question surrounding the new customer point, this varies from bank to bank. For example, for First Direct’s current offer, you can qualify for an incentive as long as you haven’t had any account with First Direct (or HSBC – its parent company) since Jan 2018. For Virgin Money’s existing offer, they classify a new customer as being someone who hasn’t had an account with them (or its sister banks – Clydesdale or Yorkshire Bank) since November 2020. So it’s certainly feasible to bag more than one of these bonuses over time.
@ Z-man Thanks for the kind words on the article. As Svr says, bank switching incentives are not taxable according to HMRC.