Why do savings accounts need a linked current account?

dag_2

Does anyone know why it is that some savings accounts need to be linked to a current account, and others don't?

I have - or have applied for - accounts with ICICI UK, Kaupthing Edge, Bradford & Bingley and Birmingham Midshires, all of which ask you to nominate a current account for deposits and withdrawals. That current account needs to be able to support either cheques or direct debits or both.

But I also have an Egg savings account, which doesn't require a linked current account; it seems you can withdraw money from an Egg savings account into any account at all. And I have also applied for a Cahoot savings account, whose application didn't ask for a linked current account; I suspect it's possible to withdraw into any account from Cahoot savings accounts too.

Reason I ask is because this forum has been very jittery lately, what with Icesave freezing, Kaupthing Edge having transaction backlogs and Cahoot having a power outage.

Banks do go bust from time to time; and even if they don't go bust, they sometimes don't offer full transaction services for a while. But if you only have one current account, which you are relying on to withdraw your savings, and it goes belly up, then you're stuffed. You then have to apply for another account, and then link it to the old savings accounts, before you can withdraw any money, and this may require you to jump through several bureaucratic hoops.

I'm also worried that your credit score might not be good enough to open a new current account that satisfies the linking account criteria. Basic bank accounts don't support cheques and direct debits, and therefore can't be used as linked accounts for savings accounts, however, applications for current accounts that do support cheques and direct debits are more likely to be rejected, especially now that there's a credit crunch going on.

Is anyone able to say which savings accounts let you make withdrawals into accounts that haven't been set up as "linked" accounts beforehand? And which savings accounts allow you to make withdrawals into "basic" bank accounts? And of these, which ones pay the best interest rates and/or have the least conditions and/or have the best national government compensation scheme backings?

Thanks.

dunstonh

direct providers will use the account to send and take money from. Also, having your current account details helps to pass the electronic money laundering check.

dag_2

Yeah, I thought it might simplify the money laundering check thing. However, if it was absolutely essential for savings accounts to link to current accounts to pass money laundering checks, then there wouldn't be any savings accounts that don't require you to link current accounts at all. But that's clearly not the case.

Admittedly I have been an existing customer of both Egg and Cahoot for quite a while, though; Egg for credit cards and cash ISA, and Cahoot for the "flexible loan" which is now no longer accepting new applications, but existing accounts still operate. I can't remember what I had to do to verify my identity with either Egg or Cahoot, but I don't remember them being particularly complicated.