Losers, Switch Banks
I've been a massive loser. So I switched banks a lot. And everyone should. Including you.
I recently moved apartment, and because I like to get my mail delivered to me and not via my parents, I decided to update all my address details for all my bank accounts.
This was painful.
I have a lot of bank accounts. And some of them wanted proof that I moved.
Do I actively use all of these bank accounts? No.
So why do I have them all?
The First Switch
It all started quite a few years ago when I was with one bank. I had been with this bank for many years. I was a very loyal customer. I paid them no fees, and they gave me no benefits. It was a beautiful relationship. They did have some nice things about them. They had a nice app. And the card was red, so it was always easy to find. But apart from that, the bank wasn’t bending over backwards to keep me. One day I discovered I could switch to another bank and get £150 just for switching! Well who is going to turn their nose up at free money, especially that much.
Now, I will caveat this and say I am living in the UK. In the UK there is a lovely scheme that virtually all banks are signed up to. It’s called the Current Account Switch Guarantee. With this, anyone is able to go to a new bank, sign up to it, and tell the new bank, my old account is in old bank name, my details are 123456 and 12345678, please move me over. And they will, within 10 days. Any money being sent to your old bank that you're afraid to miss by switching? Not to worry, the old bank will have a forwarding address of where to pass your precious pennies on. You will need to change your details eventually, as the forwarding doesn't last forever, but it currently forwards for around 1 year, so plenty of time to get your affairs in order.
And so, I was £150 richer. Hurrah! And I stayed with the new bank forever, the end.
...
Or did I?
The Switch Cycle
I did stay with this bank for a long time. Again, out of customer loyalty. They had given me quite a bit of free money just for switching, which was amazingly easy. And they had a great extra perk that my old bank did not. For the first year of being with them, they gave me 5% interest APR paid monthly, on anything up to £2500. Now, that sounds like great interest but on a very low amount, but as I made sure to always have at least £2500 in my account, I was getting a free £10 a month, or £120 a year. Again, this doesn't sound like a lot. But this was really my first foray into passive income and I was loving it.
As an aside, I didn't often think about the £10 as £10, I thought about it in sandwiches. Namely, Subway sandwiches. With £10 I could buy 2 subways. So this was my subway budget. I would get 2 subways a month and they would be free because this money was, in essence, free. I did nothing to earn it. The bank was busy putting my money to work and paying me interest in return. I was just very happy with my subways. I'm a simple man with simple needs.
Alas, all good things must come to an end. This 5% interest was only a special offer for new customers, and only lasted one year. After one year I was no longer considered new and that perk plummeted. I can't recall exactly what it plummeted to, but it was less than 1%. So less than £2 a month for having £2500 stored in my account. That, by the by, is not even enough for one subway sandwich a month.
The mid 2010's were shit. And so were the interest rates. But finally, the challenger banks were coming. And I think it's fair to say they have made quite the impact on the banking scene and the hoarding of the traditional high street banks.
The problem these banks had to overcome was that people didn't know who they were and that can cause unease in people. People will happily go into town and see a well known bank and do business with them because they have heard of them before, they know they have been around for a long time, and they hopefully shouldn't go bust anytime soon. (This was post-2008 but the hope was still there. For anyone without hope, be grateful for the FSCS Bank Compensation Scheme).
The new challenger banks offered many things that the traditional banks were slower to move to. This included:
- App-based account creation
- App-based cheque deposit
- Higher than average interest rates.
And so, a younger me started anew, and switched banks. Again. And again. And again. At last count I had 10 open bank accounts. Some of these were current accounts, some were purely savings only. Whatever is needed for the best savings rate, I had switched for.
And I want everyone to consider switching too.
Not A Loyal Customer
Banks know that people hate change. In fact, most companies know that people hate change.
Insurance companies know that people hate signing up to new companies for their insurance, and so they will gradually increase insurance premiums year on year in the safe knowledge that most will just accept the 'modest' increase and not bother shopping around. This modest increase becomes quite the price difference after years of not switching.
Broadband companies know that people also hate switching for fear of being disconnected for a period of time, which given the increase in remote working is a real impediment that much be avoided at all costs. So every year the bills rise, usually linked to the a measure of inflation that isn't being reflected in most peoples payslip.
And streaming services, the new essential products rendering ugly satellites and clunky cable obsolete, also know that people hate change. Streamers have an additional tool in their arsenal, namely FOMO - Fear Of Missing Out - of the latest big hit. But the same applies, people hate change and like the convenience of what is present and easy.
And banks. With all the control of your finances, the fear of fraud and losing it all, choosing a bank is important and, for most people, mustn't be changed 'just in case.' But not changing is why banks are able to get away with offering such paltry returns. The difference in saving rates can be a couple of percent, which sounds meagre but when applied to current and savings accounts people have, it could easily be hundreds of pounds a year.
Simplicity Rules
I have my standard bank account that just accepts my money from my salary and pays out all my bills. It's app based, works very well, any issues I have are dealt with efficiently and it covers my needs. Does it provide interest? No. But that's where the next bank comes in.
I have a savings account with Chip. It's app based, easy to open, but most importantly, it has consistently over the last few months had the highest savings interest rate available for it's easy access account. The Bank of England base rate moves, and so does it's savings rate. Another challenger bank, such as Tandem, ups their interest rate, Chip goes one further and exceeds it.
This is what most banks simply refuse to do with their savings products. Once the Bank of England base rate moves, I often get emails from a bank I have a credit card with stating that interest has increased for it. The savings account interest emails come later, if at all.
Vote with your feet. Move away from the bank that isn't incentivising you to stay. I focus on interest as I want that passive income. I want my money to get me as much as possible every month. When the base rate rises, interest rates for loans and mortgages and debts all rise. And the same should be happening for savings. They are 2 sides of the same coin.
For more, professional, clear cut, unbiased advice, go to MoneySavingExpert, operated by the fantastic Martin Lewis. He is teaching the UK, and the world, what they should be teaching schools. Being able to leave school and sign up for student loans, bank loans for a car or even a mortgage with no real understanding of financial literacy is definitely a failing of the current education system which should be addressed.
Go and look at your current savings rates for your accounts, and see how they compare to those listed on MonaySavingExpert top savings account. If they don't compare at all, switch.
You have nothing to lose and all to gain.
Losers, switch banks.