Switch And Save!

Donna Werbner tells us how she switched to a current account that pays 6.5% interest.

I opened my first current account at the age of 11 and, along with a paying-in book, I received a furry blue eagle with a black hat. This, the bank clearly thought, would ensure loyalty for life.

And to some extent, they were right. When I started university, I remained firmly impervious to the calls from banks at Freshers' Fair stalls, trying to tempt me to set up a new account with free pens, music vouchers and cashback offers. I was young, but even then, I knew they were up to something - and of course they were after my soon-to-be-large overdraft - so I decided to stick with the bank I knew and trusted.

It was after university, when I'd paid off my overdraft, that I realised my loyalty might have been misplaced. My current account was paying a measly 0.08% interest! Compared to the market-leading current account, which was offering around 6%, this was peanuts.

The battle for current accounts

Back in the old days, the banks had it good. The set-up was: your current account paid you very little interest, but allowed you instant access. Your savings account paid you a decent amount of interest, but often required 30 days' written notice.

Things have changed since then. The banks know that if you have a current account with them, you are far more likely to take out a mortgage and a savings account with them too.  And with greater competition from former building societies and others, the difference between a savings and a current account has become a little blurred.

Savings accounts will now pay as much 6.41% in interest and still allow you instant access to your money. And some current accounts, such as Alliance & Leicester's market-leading Premier Direct current account, will offer you as much as 6.5% interest on balances up to £2,500. If you refer a friend, you receive £40 each, and there are special mortgage deals and savings accounts available to Premier account holders.

If you, like me, are tempted to take up this offer, then be careful, there are strings attached:

• You have to deposit at least £500 into your account every month. Each month you fail to do so, the bank will charge you £5.
• The 6.5% interest rate only applies to the first £2,500. On balances over £2,500, the interest rate is just 0.1%.
• The interest is only set at 6.5% for a year. After this time, it will drop to 1% below the Bank of England's Base Rate (currently 4.75%). This is still relatively competitive, but still, it shows that new customers and existing customers aren't treated the same.

Bearing all this in mind, I decided to open an account at A & L but also maintain my old current account with Barclays. That way, if the service at Alliance & Leicester wasn't up to scratch, I could easily change back. It also means that I still have the option of depositing cheques at a Barclays branch, which is more convenient for me.

Easy as pie?

Alliance & Leicester offers what it calls a `Premier Switching Service'. This means that it transfers all your direct debits from your old account to your new one, reducing the hassle for you.

However, I still found it quite time-consuming to set up a new account. As well as filling in the application form, you have to spend time setting up internet and telephone banking. You also have to learn your new pin number and bank details. And for weeks, I was bombarded with post: a cheque book, my debit card, a `welcome pack'... it felt endless, especially as my boyfriend was receiving equal amounts of post from the bank as well. In fact, it took him several months to complete the changeover - and he swore to me he would never switch current accounts again.

For me, however, it's been worth it. I like to see my money earning money, and I'd say that, on balance, it has encouraged me to spend less and save more. Perhaps Barclays expects me to feel the occasional twinge of guilt for abandoning my old furry friend Mr Birdy. But over the years, I think I got to know him pretty well. I feel confident that, deep down in his hollow plastic shell, he would approve of my reasons.

So come on, what are you waiting for? Visit our current account centre. Mr Birdy and I wish you luck.

Current Account Checklist

• If you take out a current account that requires you to pay in a certain amount each month, and then you lose your job or your income drops, make sure you phone the bank immediately and ask them to downgrade your account to a low-interest, standard current account. This should ensure you do not receive any penalty charges.
• Many current accounts will not pay a high interest rate on your entire balance. So, to get the most of your money, check your balance regularly and use a savings account as well.
• Remember, interest rates aren't everything. Ethical considerations may also be important to you - in which case you may want to check out The Co-operative Bank's current account, which offers a £100 interest and fee free overdraft, preferential rates on agreed higher overdrafts and ethical benefits such as getting £35 off your first year's bill for green electricity.

More: Visit our Current Account Centre! | What's Happening With Bank Charges?