Bank accounts were once ugly creatures that bit hard when you went overdrawn, and gave nothing back when you were in credit.
Most still do that. But a few innovative gems are starting to sparkle. So instead of bank-bashing, I’m going to applaud the accounts that pay.
It could not be a better time. Last September, in response to multiple wrist-slappings for blocking competition, the banks finally made switching easier and launched a new “seven day switching” system.
They now switch your direct debits and standing orders within a week, close your old account and ensure payments get forwarded to your new bank for 13 months.
THE BANK THAT PAYS YOU TO PAY YOUR BILLS
Three years ago, Santander was a customer service pariah. Now its innovative 123 current account is the customer service silver medallist, with 74 per cent rating it “great”.
“We’ve been using it for seven months — we’ve earned £350 with the credit card,” said one user.
You gain in two ways. Pay your bills by direct debit and get 3 per cent cashback on mobile, phone and broadband; 2 per cent on energy; and 1 per cent on water, council tax and Santander mortgage payments. These should dwarf its £2 per month fee, as someone with typical bills earns £10 per month. It also pays a best buy 3 per cent AER savings interest if you have £3,000-£20,000.
To qualify, you must pay in £500 per month. You can also apply for its linked credit card which gives 3 per cent back on petrol spend. Repay in full to avoid interest.
THE BANK SAVING YOU UP TO £500 ON TRAVEL, MOBILE AND ROADSIDE INSURANCE
Many have been ripped-off for years with fee-charging bank accounts. Some are even entitled to reclaim years of fees, which can add up to hundreds of pounds.
Used correctly, a few fee-paying accounts can win. Nationwide’s FlexPlus tops the tree. You pay £10 per month and included is European breakdown cover, family worldwide insurance (up to age 74) and family smartphone insurance. A family needing them all could pay £600 per year separately. For travel cover, ensure you disclose pre-existing conditions.
THE BANK THAT PAYS YOU £100 THEN £5 EACH MONTH
The Halifax Reward account pays no interest, just pays you £5 monthly after tax if you stay in credit. It also gives you £100 for switching, so provided you do not keep savings in there, it can add up well.
THE BANKS THAT GIVE YOU A 0 PER CENT OVERDRAFT
An overdraft is a debt like any other. If you often go into the red, the most crucial thing is cutting its cost to give you respite to clear it. While First Direct offers a 0 per cent overdraft for up to £250, Nationwide’s FlexDirect may give an interest-free overdraft for more — though it only lasts a year, and it is 50p per day after that.
If that isn’t long enough to clear your debt, then it is possible to shift your overdraft to a few specialist credit cards which are 0 per cent for 29 months.
It is worth noting that if you regularly go beyond your overdraft limit, there are no competitive banks. While for those in severe hardship bank charge reclaiming is still possible, the best thing to do is try to keep a tight rein on your money.
THE BANKS THAT DON’T CREDIT SCORE YOU
Sadly, there are up to a million people in the UK without a bank account; and some banks do not make it easy to get them.
For all the top pick deals above, you will need to pass a credit score. If that’s not going to happen, basic bank accounts don’t need credit checks, as they just provide a no-frills, no-overdraft service. You need identification to get one.
When applying, ask for the specific account by name — otherwise you could get forms for standard accounts, then get rejected. The better options include Barclays Cash Card and the Co-operative Bank Cashminder account, though this is not available to bankrupts.
Even though there’s no overdraft, they can still fine you if you try to spend more than you have got.
THE BANK SERVICE GOLD MEDALLIST
Your bank account is the one financial product you interact with day-to-day — so service counts.
Every six months, I poll people on my website to find out which bank you rate the most.
And every time I have done it, First Direct has won the gold medal by a mile. Financially, it’s decent too, giving £100 to join and a 0 per cent overdraft for up to £250.
So if your bank’s service is dire, why reward it with your continued custom?
On my latest poll, First Direct came out on top, with a 92 per cent “great” mark. It was followed by Santander and the Co-op, with a respective 74 per cent and 71 per cent “great” mark. In joint bottom, out of the 14 marked, were Natwest and TSC, with only 37 per cent rating the service “great”.