History and Background

•  On face value the topic of current accounts is not the world’s most interesting, however given the continued low level of interest rates, after more than 7 years of a 0.5% interest rate the Bank of England cut it further to 0.25% in August 2016, and the recent slashing of perks in current account rates, finding the right current account has become very important to those who are looking to save some money in one of the safest ways possible.
• I have only ever used 2 banks for my current account to date, first there was my Abbey National (now Santander) child’s account created by me for my parents and more than 15 years later my current banking institution, NatWest. I decided to make the jump from Abbey to NatWest because I was off to university and they were offering the best deal.
• My NatWest Student account offered a free 16-25 Railcard for 3 years and an increasing over-draft for every year you progressed through university, what more could an 18year old want… However they then moved me onto their Graduate Account which offered the square root of nothing.
• My aim within this piece is to explain the options and my decision process in choosing the best current account for me. When choosing the new account I had the following criteria, in order of importance:
  • Maximise returns – I want the best return on investment (ROI) for the money I’m holding in and spending from the account.
  • Service – I hate having my time wasted as much as the next person so I don’t want to be left frustrated by being on hold for hours or having to deal with an automated recording.
  • Quality of Technology – I am a tech embracing person and love the convenience that comes with more technology based accounts and financial institutions.
  • Locality of Branch – definitely the least important one because I haven’t visited a branch in more than 2 years, but I like the dependability that I can go in and speak to someone face to face in an emergency.

Reasons for Staying

• Whilst I have now made the decision to move and re-consider my current account options, I did for ~3 years do nothing about my poor quality Graduate Account with NatWest, why? I think it can fundamentally be broken down into three main reasons:
  • Who cares about ROI on a current account? Like most people I didn’t expect the record low interest rates to remain for so long and with my Cash Isa, Stocks and Shares Isa plus other investments I didn’t think returns on current account were worth focusing on.
  • Inertia – NatWest had always done right by me and I hadn’t had any problems with them, they had even rapidly unblocked my cards as I travelled the world before starting my career.
  • Effort – All my direct debits are set up, anyone who needs to pay me has my details, I know my details, and my salary gets paid into that account. For a long time moving seemed like a whole lot of effort for little return.

So why move now?

•  As I’ve already highlighted at the start, today is a really rubbish time to be a saver. The interest rate in the UK is at 0.25% and given the debt crisis in China (http://www.telegraph.co.uk/business/2016/05/06/warnings-mount-on-worlds-corporate-debt-china-crisis/) and the result of the Brexit vote it doesn’t look like things will improve anytime soon.
• Secondly, there is good money to be made from changing current accounts, £100 of ‘free money’ – just for having your money with that institution – is not to be turned away lightly. This is even after the latest round of slashing of current account perks by the largest banks. 
• Thirdly, doing it once – and having a positive experience – will make me more likely to move in the future and also move other accounts (phone, gas, electricity, TV etc.). Almost without fail new customers get better deals than existing ones. Therefore getting into the habit of switching, and starting with a large one like a current account, could create positive changes in other areas.
• Fourthly, the introduction of the 7 day switching guarantee, which came into effect on September 16^th 2013, significantly simplifies and puts a time constraint around things. With the 7 day guarantee if a payment is missed during the switch then you’ll be refunded for any of the additional cost incurred.
• Finally, I started to read the fine print of some of the accounts and realised I didn’t have to change everything and close my old account all at once. Many of the accounts – including Santander and TSB – only requires you to pay in £500 a month to get the benefits, therefore you can keep your old account and direct debt across £500 each month and benefit. Then over time you can slowly redirect other direct debits and your salary over a longer period.
• Therefore a number of things led me to finally bite the bullet and make the decision to switch. All of these definitely snowballed together, and the more you are actively thinking about doing it, the more likely you are to go through with it and make a decision, even if it is so you stop thinking about it!

So I want to move…but where?

• There are many banks and financial institutions in the UK offering current accounts, and whilst I have to admit I didn’t look at them all in great detail, I conducted a significant amount of research and covered many of them. Based on that research I see 2 stand out favourites, which were best for me, and I believe will be best of many millennials.
• Santander 123 Account
  • Probably the most ‘famous’ current account currently available. Had I been a little faster to consider switching this would have been a no brainer.
  • The benefits; (a) Monthly interest of 3% AER (variable) payable on your entire balance up to £20,000, when you have at least £3,000 in your account (although this will drop down to 1.5% in a few days, more information here. (b) 1%, 2% or 3% Cashback on selected household bills
  • The costs; (a) pay a monthly account fee of £5. (b) must fund the account with at least £500 a month (excludes internal transfers) (c) a minimum balance of £1,000 is needed to receive interest. (d) have at least 2 active direct debits
• It hasn’t always been £5 a month cost, before January 2016 the Santander 123 Account only cost £2 per month. Whilst on initial thought a £3 increase doesn’t sound ridiculous remember that is a 150% increase and could mean switching is no longer cost effective for many individuals, especially if you don’t have a large balance in your current account or don’t pay all your household bills yourself.
• TSB Plus Account
  • Only recently a stand alone bank again, but much of the branch network and infrastructure was given when it split from Lloyds after the 2008 Financial Crisis. 
  • The benefits; (a) get 5% AER current account interest on balances up to £2,000 (b) 5% cashback on your first £100 of contactless payments every month (c ) 1% monthly cashback up to £500 on platinum 20 month purchase credit card (d) no monthly fee
  • The costs; (a) pay in a minimum of £500 a month (b) register for Internet Banking, Paperless Statements and Paperless Correspondence
• However, be warned, from 4^th January 2017 the first benefit highlighted above no longer stand, and sadly it isn’t getting better. Instead of 5% on balances up to £2,000 you will only get 3% interest on balances up to £1,500. This is frustrating but still makes it one of the best current accounts available.

My Current Account Decision

• Having weighed up the two best options detailed above, I personally choose the TSB Plus Account. There are a few key reasons why I came to this decision;
  • I don’t want to hold  significant amounts of money in my current account. To really see significant return with the Santander 123 account you need to have more than £12,000 in the account. The vast majority of my savings are held in a number of different investments, more information about which can be found here: http://jablifestyle.net/2016/08/07/starting-stock-market-investment/
  • I don’t pay all my household bills – I live with my girlfriend and we split the responsibility of paying our bills (very modern couple!), so I wouldn’t see the full cost of them leaving my account.
  • I have an excellent American Express Credit Card, and therefore didn’t need the credit card that comes with Santander….check out my post on Credit Card decisions: http://jablifestyle.net/2016/05/07/choosingcreditcard/

My Transferring Experience

• I didn’t use the 7 day switching guarantee or immediate manual switching because I haven’t fully switched everything yet. I still have my NatWest current account and probably will have a while yet, for a couple of reasons:
  • To get the benefits of the TSB Plus account I only need to transfer £500 into my account each month, not pay in my full salary. Therefore I still get paid into my NatWest Account and then have direct debt to my TSB Plus account for £500 the next day.
  • With the TSB account you only get rewards for up to £2,000 (£1,500 from January 2017). I tend to have a little more than this in my account therefore there is no incentive to hold it all in one account, having it split across two helps security and ease of access.
  • I didn’t have to change all my debit debts, I can still have them on my old account and slowly move them across when it’s convenient to me.
• Because of this my transfer experience was extremely pleasant and easy, for those whose main reason for not switching is the effort of moving salary and direct debts then I strongly suggest doing it this way.

Conclusion

• We remain in an unprecedented period of low interest rates and fluctuating stock markets, therefore we all need to think carefully about maximising our return. Even with many banks significantly reducing their offering in recent months, and I’m sure more will follow in the months to come, many continue to easily beat the return on a Cash ISA and therefore you should look to take advantage.
• If you have inertia about moving I really hope the above helps give you the extra boost needed to get you to take action. If you’ve wanted to switch for a while but haven’t had the time to find out which was the best option for you, I hope this has helped.
• If you’ve enjoyed this post, why not check out other posts I’ve published on similar themes: Millennial Money Fundamentals, Choosing a ‘Rewards’ Credit Card, Millennials Pension Saving and Investing Post Brexit

 

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