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Interest rates driving current account switching

9th September 2014 Print

One year on from the introduction of the Current Account Switching Guarantee, MoneySuperMarket reveals the main factors incentivising customers to switch their current account. 

Based on site analysis, the UK’s number one comparison site found that over a quarter of consumers (27 per cent) are looking for a current account which offers in-credit interest. A further one in five (20 per cent) want an account which offers cashback, and one in ten are incentivised to shop around because of the customer service provided or the benefits that come with it (10 per cent respectively). Eight per cent are looking for a current account for the overdraft facility on offer.

The analysis also compared current account interest rates against those of savings accounts, and found that savvy consumers could currently earn over three times more interest with one of the top paying current accounts over a top easy access savings account. Both Nationwide and TSB offer current accounts with in-credit interest rates of five per cent, whereas the leading easy access account pays just 1.50 per cent AER. Nationwide’s FlexDirect account currently offers five per cent AER on balances up to £2,500, while TSB Classic Plus Account also offers the same rate on balances up to £2,000. Alternatively, Santander’s 123 account pays 3.00 per cent AER on balances between £3,000 and £20,000 making it a good option for anyone with a larger savings pot.

In addition to competitive rates, a number of current accounts are also boasting attractive benefits. For example, M&S Bank is offering a £125 M&S gift card when customers switch their current account exclusively through MoneySuperMarket, while consumers who move to Halifax’s Reward Current Account would also benefit from a £5 per month reward and up to 15 per cent cashback when using their debit card. Halifax also offers £100 to those using its dedicated switching service.

Kevin Mountford, head of banking at MoneySuperMarket, said: “As our research shows, high in-credit interest rates are the main driver for encouraging people to switch current accounts, no doubt fuelled by the fact savings rates are so low at the moment. The implementation of the Seven Day Switching Guarantee last year certainly stoked the fire in the current account market, with many providers stepping up their offers to entice consumers to switch. New products continue to be launched with some offering competitive interest rates of up to five per cent. In comparison, easy access savings accounts don’t look so appealing, with the leading interest rate on easy access accounts reaching just 1.50 per cent. For many savers, the return on your money will be much higher in a current account than a standard savings account, however, ISAs should still be the first port of call for savers due to the tax free benefits on offer.

“If you are a saver looking for better rates, then it is important to make sure you maximise your savings pot whether in a transitional savings account, ISA or current account. Mixing your finances between a range of best paying accounts will ensure the returns are better compared to sticking with one poorly paying account. However, in order to benefit from the higher rates, most current accounts require customers to meet a minimum funding amount, while many market leading savings deals have a number of account restrictions, so it is important to check this and other terms and conditions before you switch.”