Current accounts: short-term gains vs. long-term value

With the seven-day current account switch guarantee here, we weigh up the short-term gains with the long-term value on some of the leading current accounts.

Switching your current account is now a whole lot easier.

From this week, the new Current Account Switch Service Guarantee mean you can switch current account in just seven working days.

The move is meant to encourage us to ditch rubbish current accounts, but also act as a wake-up call to providers to offer better deals.

Ahead of the switch, several banks and building societies improved their current account offerings in order to keep existing customers happy, as well as attract some new ones.

But with so many offers circulating at the same time it can be difficult to judge how good an account actually is.

So let’s take a look at the main providers and weigh up the short-term gains with the long-term value of the accounts they are trumpeting.

First Direct

A good place to start is with the bank that has the biggest cash incentive going.

First Direct is offering a £125 bonus if you switch to its 1st Account.

It’s a very tempting short-term gain,and First Direct also has plenty to offer account holders to satisfy them in the long term.

For a start, the bank offers all sorts of exclusive products to its existing customers so once you’re in, you can get access to First Direct’s mortgages, credit cards and savings products.  

Also the 1st Account comes with the option of a £250 interest-free overdraft for as long as you have the account. Most other providers start charging on their overdrafts after an introductory fee-free period lasting a few months to a year ends, but First Direct has a consistent approach that you might appreciate in the long-term.

Another enduring feature of the 1st Account is its award-winning customer service. You won’t have to worry about opening and closing times or dealing with infuriating automated systems, as First Direct has a 24/7 customer service centre based in the UK, where you can talk to real people night or day.

First Direct is so confident in the long-term benefits on its 1st Account that it has attached a satisfaction guarantee. If after six months and within 12 you find aren’t happy with the account and decide to leave, First Direct will pay you £100.

Halifax

Halifax is also trying to attract customers to its current accounts with a cash incentive.

Until the end of the year Halifax will pay £100 to new customers that sign up to its Current Account, Reward Current Account or Ultimate Reward Current Account. The offer is also open to existing customers on other accounts that wish to switch to one of these.

The financial gain doesn’t stop there though.

Halifax has launched a reward scheme called Cashback Extras, which will allow current account holders to earn up to 15% cashback at certain retailers like Argos, New Look and Domino’s Pizza.

Halifax reckons the scheme could net customers over a £100 a year on average. Read more about it in Halifax current account holders to earn cashback on their spending.

And if you go for the Halifax Reward Account you can boost your bank balance even further.

The Reward Account is fee-free and pays a £5 bonus each month that you deposit at least £750.

So as a new customer you have the potential to bag £260 in your first year with a Halifax Reward Account, and you could earn £160 every year after that with the ongoing benefits of the cashback scheme and monthly bonus. That's pretty good long-term value for an account that is free to use.

You may also qualify for a sixth-month interest-free overdraft, but once this offer expires you will be charged a daily fee.

Overall there is a lot of long-term value in the Halifax Reward account but being an existing current account customer doesn’t get you many exclusives with the bank. You get treated the same as everyone else and there aren’t any preferential rates available.

Santander

The Santander 123 Current Account doesn’t come with an enticing cash welcome bonus. Instead it offers you long-term benefits, like the chance to earn up to 3% cashback on direct debits as well as up to 3% in-credit interest.

You will pocket 1% cashback on water, Council Tax and Santander mortgage repayments, 2% on gas and electricity bills and 3% on mobile phone, home phone, broadband and paid-for TV packages with the 123 Current Account.

And you can earn 1% interest on balances from £1,000, 2% on balances from £2,000 and 3% on balances from £3,000 up to £20,000. The top tier of interest is better than what you can get in most savings accounts right now.

So if you’re responsible for paying household bills and have either a lump sum of cash or earn enough to keep a healthy bank balance each month the Santander 123 Current Account could offer the most long-term value for you.

If you switch using Santander’s dedicated service you will also be offered an interest-free arranged overdraft facility. However, this will only last four months before it reverts to daily charges, so it’s a short-term benefit that could have longer term consequences if you don't pay it off.

As a 123 Current Account customer you will also get exclusive offers on other products like savings bonds and credit cards. The Santander 123 Cashback Credit Card for example is available fee-free to 123 Current Account customers.

One important thing to mention though is that the account comes with a £2 monthly fee, which means you pay £24 a year for the account.

Nationwide

Nationwide also doesn’t offer any cold, hard cash for people to switch to its Flex, FlexDirect or FlexPlus accounts.

But signing up to any of these will give you access to Flexclusives which are products that only Flex current account customers can receive. For more read Exclusive deals banks and building societies offer existing customers.

This is a long-term benefit, as these products tend to be very competitive. For example, the Nationwide Flexclusive ISA pays a market-leading rate of 2.25% at the moment. Non-current account customers can only get a rate of 2.00% on the alternative Easy Saver ISA.

Of the three accounts Nationwide has on offer the FlexDirect is most worth a mention.

That’s because it’s a free account that offers 5% fixed in-credit interest on balances up to £2,500, so long as you pay in £1,000 each month. That’s a better return than any savings account is offering right now.

However, it's a temporary fixed rate which falls away after 12 months. The rate drops to 1.00% after a year and switches from a fixed rate to a variable one.

The overdraft also has a time-limit. You can get an interest-free arranged overdraft for 12 months but after this period it will cost you 50p a day.

NatWest and Royal Bank of Scotland

NatWest and the Royal Bank of Scotland don’t have any cash bonuses waiting for new customers that might want to switch to their Select, Select Silver , Select Platinum or Black current accounts either.

But new and existing customers can get up to 1% cashback on their debit card spending at selected retailers via a new scheme called Cashback Plus. Currently there are 12 participating retailers, but more are due to join in the coming months. Read more in NatWest and RBS introduce cashback on debit card spending.

The NatWest/RBS Select Account is the only account that is fee-free, but the conservative amount of cashback is about all you’ll get from it. There is no in-credit interest available, no exclusive offers and no interest-free overdraft to boost its offering.

Lloyds TSB and Bank of Scotland

Lloyds TSB and Bank of Scotland both offer a choice of Premier, Platinum, Gold, Silver or Classic current accounts.

You can add something called Vantage to any of these for free which allows you to earn in-credit interest on balances up to £5,000 - a long-term benefit if you can keep a healthy balance.

On balances from £1 you’ll earn 1.50%, balances from £1,000 gets 2% and balances from £3,000 up to £5,000 will bag you 3%. Again the top tier of interest available is more promising than most other savings accounts around at the moment.

Only the Classic Current Account is free to use. But apart from credit interest the account doesn’t offer anything else tempting like a cash bonus for joining up, cashback, an interest-free overdraft or any exclusive deals.

Weighing it all up

Weighing up the benefits can be a difficult job, so to make it a bit clearer I have created a table showing what each of the main accounts offer in the short-term and the long-term. The accounts are arranged alphabetically.

*Subject to status

If you're only interested in what an account can offer in the short term, perhaps because you plan to switch a lot, First Direct offers the biggest cash welcome offer, but the Halifax Reward Account has the potential to provide the most cash in the first year overall (£260).

But if you're someone that wants to switch and stay put Santander, First Direct, Nationwide and Halifax appear to offer the best value overall as they combine both long-term and the short-term incentives.

NatWest, RBS, Lloyds TSB and Bank of Scotland have engineered accounts that stick to simple long-term benefits which you might prefer, but you can get a lot better elsewhere.

This article has been updated since its original publication

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