Avoid this danger and earn 5% on savings

Will holding a fistful of current accounts do more harm to your credit score than good?

We all know it’s a great idea to switch your current account from time to time. Not only to escape appalling customer service, but also to take advantage of generous rates on your balance.

After all there are some great deals on the market right now. For the next 12 months, you can earn a high fixed rate of 5% on the first £2,500 of your balance with the Alliance & Leicester Premier Direct account and the Santander Preferred In-Credit Rate account. (Note that balances over £2,500 earn just 0.10%.)

You can also earn a £5 monthly cash bonus with the Halifax Reward current account as long as you fund the account with at least £1,000 every month. Meanwhile, at Lloyds TSB a rate of 4% is on offer from the Classic with Vantage account on balances of £5,000 to £7,000.

Juggling your money

At lovemoney.com we have suggested juggling your money between different current accounts to maximise your return even further. You can find out more how to do this by watching The great current account trick and reading Earn the highest rate on your easy access savings.

Accounts like these are proving very popular with savers who are unable to earn comparative rates with ordinary savings accounts. But is it sensible to continually move money between current accounts to exploit the better rates on offer?

Some of our lovemoney.readers have expressed concerns. For example, Fickle recently asked:

“I was under the impression that if you keep switching your account (e.g. to chase rates) your credit rating is affected in a bad way - is this just an old wives' tale?”

So does opening a string of current accounts have a negative effect on your credit score, and if the banks realise what you’re up to - that is, operating multiple current accounts to boost your savings rather than for banking purposes - are they likely to take a dim view when you apply for a credit card or mortgage in the future?

Your credit score

When you open a new current account, you may well be asked for certain information such as how long you’ve been at your existing bank, your employment details and the length of time you have lived at your current address. Stability indicators like these are likely to be built into the bank’s credit scoring system.

I asked credit reference agency, Experian whether opening multiple current accounts or switching accounts repeatedly could force your score down. They said any impact is likely to be very minor and is no real reason why you shouldn't switch or transfer your money between a range of current accounts to make the most of your savings.   

Recent question on this topic

• Atswei asks:

  I have 3 current accounts and 4 credit cards.

  • 
    MikeGG1 answered "Closing a current account shouldn't affect your rating but, if there is an overdraft facility on..."
  • 
    Atswei answered "Thanks Mike, I am just trying to streamline and control my accounts, I don't intend to take any..."
  • Read more answers

That said, it’s a different ball game if you arrange any overdraft facilities. Although, if you’re planning to use current accounts for the purpose of earning a high interest on your savings, I doubt an overdraft would be necessary for you.

However, if you do set up an overdraft - even if you haven’t used it - it will still be registered on your credit report as available credit. But this isn’t necessarily a problem for your credit score either. If you do use an overdraft facility on more than one current account, again it's unlikely to have much impact on your credit score as long as you keep within the borrowing limits allowed under your overdraft facility, and generally manage all your accounts well.

Again multiple accounts shouldn’t affect your credit score as long as your total levels of outstanding debt - and available debt - are affordable for you.

Will the banks find me out?

With Alliance & Leicester, Santander and Lloyds TSB accounts, you ideally want to keep a continuous balance of the maximum amount allowed to earn the highest possible return on your cash. That is, £2,500 in each of the A&L and Santander accounts, and £7,000 with Lloyds TSB. If you can manage that, none of these will ever be left as empty shells.

It's a different story with Halifax where the rules dictate that £1,000 must hit your account at some point during the month to earn the £5 reward, but there's absolutely no requirement to keep your balance at this level. In fact, you can still benefit from the reward even if you go overdrawn.

So it’s pretty easy to move £1,000 into Halifax to enjoy the cash bonus, and then instantly transfer it to benefit from extra interest in an alternative account.

Of course, Halifax wouldn’t actively encourage its customers to treat their Rewards account in this way (no surprise there!) but at the same time there’s no policy in place to prevent you from doing so.

So, in a nutshell, there's really no need to worry that juggling your money in this way is having any harmful affects on your finances.

More: 10 ways to beat your bank | Four banks that are trying to suck up to you