What's the catch with playing the current account game?

moxter

On these pages I see time and time again people saying "don't bother with cash ISAs/savings accounts" and pushing people towards current accounts instead. I can see why this is; the returns are a little better. But what of the negatives?

I do rather feel that a lot of people are being encouraged to take on significant levels of hassle - not to mention vast amounts of marketing communications and junk mail - by chasing returns, and when you look at the numbers my guess is that for most people it just isn't worth it.

Let's take a perfect scenario: someone with £15k to put away as a lump sum (not particularly common). Let's also assume that they get accepted for an account which pays 5% on the full whack (how many of these are there? Not many). Let's assume they're a basic rate taxpayer (my hunch would be that most people with that sort of money to put away are probably higher rate). That works out at £600 in interest in the first year after tax, compared to £150 in a 1% cash ISA. A boost of £450 which is certainly not to be sniffed at.

But in a different scenario, consider someone who's got £5k and is a higher rate taxpayer. That's £150 in interest vs £50. Not a huge difference.

Then there are all the rules which you've got to abide by. Transfer money in, transfer money out, direct debits, standing orders, all the rest of it. Don't play by the rules and you might not get the interest. Aren't half these current accounts only introductory offers anyhow?

Added to that there's the bombardment of extra junk mail, the extra debit cards (with the associated temptation to spend) and the extra £100 is already looking on shaky ground.

But there's something else intangible which I just can't understand and perhaps people can help me out. This isn't a "loophole". Banks clearly WANT consumers to start stashing their savings in a current account rather than in a savings account, so by doing that you're playing by their rules. Why is that? What's the hidden catch? If banks can't pay big interest rates in savings accounts they're not going to treat their current account customers as a charity case. What's the snag?

Personally I do feel there's an obsession on here with chasing returns at all cost including that of convenience. Time = money and keeping on top of a vast number of accounts and making sure you abide by the small print on all of them is a hassle too far when considering making £100ish in a year.

Am I alone? I'm perfectly happy with my (0%) current account and while I'm not exactly thrilled with my worse-than-inflation cash ISA, at least I know all my money is in one place and that I don't need to worry about it. I'd be interested in other people's thoughts.

jimjames

If you're on a site about being lazy and not caring about money then you may have a point. On a site dedicated to making the most of your money then any tips that do that are worthwhile. The hassle is minimal and I've not received any marketing info. I do agree it isn't a loophole despite martin using that description.

You could equally use the same argument about saving 10p per litre of fuel but the people with money are the ones that take care of it and don't waste it unnecessarily.

smithers1981

Today i've just put £2k into 2 TSB current accounts really simple process, have set up a S/O from Tsb1 to Tsb2 and vice versa for the £500 each month......... took maybe 5 minutes, not a huge amount of hassle for the 5% gross interest.

Far better than my Tesco ISA currently paying 1.75% tax free but due to drop down very soon.

Far from hassle i quite enjoy managing and playing about with my finances.

I have another £2k to play with where to?

oldfella

we have a lot of cash at between 3% and 5%. No debit cards, if they send them I cut them up, no marketing, and 30 mins work once a month in moving money around. Probably 15-20 accounts.

No problem.

YorkshireBoy

3%, 4%, and 5% paying current accounts are loss leaders for the banks...fact! They hope to make money by cross selling loans, mortgages, insurance, and credit cards.

To assume (or have a "hunch") that most people with £15K to put away will be higher rate tax payers is daft! Many people save...many people inherit...many people are smart with money in general...and many people are older than you.

As to hassle, well I've got 2 x TSB Plus accounts with £2K in each. I cross fund £500 from one to the other each month by SO, and another SO creams off the interest. I haven't had to do anything manually with these accounts since launch.

Add in my 3 x BoS Vantage accounts, operating in the same way, and there's another £15K making a decent rate for very little effort. Indeed, I run these with £4,900ish so I don't have to cream off the interest each month.

Lloyds Vantage used to operate this way until the rate dropped and I shipped out of 2 of them, converting the third to a 4% paying Club account. The Club account is funded on a round robin with Santander and Yorkshire Bank for 3% and 4% respectively, which takes all of 3 minutes once a month. But I don't mess around with £500 (Santander), £1K (YB), and £1.5K (Lloyds)...each account gets £1.5K in and straight back out.

So that's £47K of my cash making 3-5% for very little effort after the initial set up.

I spend more time worrying about the 1.6% AER my Santander ISA is getting (my lowest paying account, but only has £10K in it)...and what I'd do if I had room in current accounts for it. Two of my other ISAs are making 2.5% AER, but one of them only until November.

I've not opened Tesco yet*, as I'm funding my Nationwide Reg Saver ISA to the max each month (2.5% is better than 2.4%!) and the rest goes into my S&S ISA.


* EDIT: But when I do I'll get a brace of them and cross fund them by SO like I do with TSB...so again, very little maintenance.

Archi_Bald

As someone with around £100K in various interest paying current accounts, I can confirm what others said in response to the OP. No bombardment with extra junk mail (paper or electronic), no debit cards I cannot handle. No undue extra work, just the sort of thing people on a money saving site would do.

Nobody is forced to protect their savings from inflation. If you are happy that your money loses value every day even though it could gain value - fine. It is your money.

castle96

It's no hassle funding/overseeing the many accounts. It earns a few bob (I think of it as a duty !) and plays them at their own game

badger09

smithers1981 wrote: »

Today i've just put £2k into 2 TSB current accounts really simple process, have set up a S/O from Tsb1 to Tsb2 and vice versa for the £500 each month......... took maybe 5 minutes, not a huge amount of hassle for the 5% gross interest.

Far better than my Tesco ISA currently paying 1.75% tax free but due to drop down very soon.

Far from hassle i quite enjoy managing and playing about with my finances.

I have another £2k to play with where to?

Nationwide FlexDirect - 5% on £2500 but only for a year?
Club Lloyds, BoS Vantage, Santander 123 or even Tesco

Depending on how much is in your cash ISA with Tesco, you might want to think about taking it out and instead using one or more of these current accounts

badger09

oldfella wrote: »

we have a lot of cash at between 3% and 5%. No debit cards, if they send them I cut them up, no marketing, and 30 mins work once a month in moving money around. Probably 15-20 accounts.

No problem.

oldfella, you might want to think again about cutting up 'superfluous' debit cards. If you ever decide to switch accounts in future, you'll almost certainly be asked for your debit card number from the switched account.

I'm rather late to the switching party so have only just found this out. Ordering a debit card (which I'd declined when I opened the now defunct account) will delay my switch - and my switching bonus, by at least a week

bowlhead99

jimjames wrote: »

moxter wrote: »

Am I alone? I'm perfectly happy with my (0%) current account and while I'm not exactly thrilled with my worse-than-inflation cash ISA, at least I know all my money is in one place and that I don't need to worry about it. I'd be interested in other people's thoughts.

If you're on a site about being lazy and not caring about money then you may have a point. On a site dedicated to making the most of your money then any tips that do that are worthwhile. The hassle is minimal and I've not received any marketing info. I do agree it isn't a loophole despite martin using that description.

You could equally use the same argument about saving 10p per litre of fuel but the people with money are the ones that take care of it and don't waste it unnecessarily.

I am with you moxter that as a 40%+ taxpayer I don't chase all the deals incessantly and have a huge number of accounts for £15k of cash. To max the rates on just the first £10k or so with mainstream banks requires a Nationwide and two TSBs and a Lloyds and some direct debits. And the promotional rates that allow you to have that £10-11k at some blended average between 4 and 5% will expire after a year.

If I was someone with £15-20k needing a home, I would prefer to stick it in a Santander account that just paid a lower rate on everything without me doing much with it. But jimjames is right, this isn't GotSomeMoneyAndWantToBeLazyAboutSavingItExpert. And there are people here who are retired or on holiday or work funny hours or short hours or can use the internet at work who have a lot of time to find the best deals and push them religiously on those who might dare to use a lower interest account or a cash ISA. They are doing a great service by finding free money for people but not everyone wants to take the advice.

moxter wrote: »

. Banks clearly WANT consumers to start stashing their savings in a current account rather than in a savings account, so by doing that you're playing by their rules. Why is that? What's the hidden catch? If banks can't pay big interest rates in savings accounts they're not going to treat their current account customers as a charity case. What's the snag?

Effectively they want to be the centre of people's financial world which allows them to upsell those customers on profitable money making products from their loans division and credit card division and insurance division and mortgage division and investment referrals division etc, or long term savings which give them the finance to run the bank without paying out massive rates, or on upgrades to 'value added' current accounts where the majority of people don't use as much of the benefits as they pay for.

So, being someone's 'main bank' is potentially very lucrative and they build the terms and conditions accordingly. If you deposit £x amount regularly and have direct debits going on they will give you the 'perk' of paying interest on some amount of the account. Generally this can be maxed to £100-£200 of value which is their marketing spend to get you to use the account.

In the same way that simply providing you free banking that comes with debit cards and ATM access and online access and a branch if you want it, is itself a marketing spend - if you don't pay to have the account, there will be a net cost to them of £something to keep it running, particularly if you keep emptying the account regularly as you spend your salary over the month and they can't lock up your money on deposit or invest it anywhere.

But because they want to be in the middle of your financial world and be the bank that sees your salary and be ingrained in your memory when you go looking for other financial services, particularly borrowing, they are happy to let you have something for nothing.

Some people will act like a MSE to exploit it and keep the account balance maxed all month to get the full value and not a penny more. Well, that's a stable source of deposits that actually they could put to use elsewhere in their business.

Some people who aren't MSEs will have much more than the minimums on the account and be getting 0-0.1% on everything above the rate thresholds. So for the fixed £125 interest outlay they have snagged a lazy customer - great.

Other people will be in overdraft where they might pay fees or at least won't meet the conditions to get paid a penny of interest that month.

Other people will have a positive balance and love the idea of the bank paying interest on it, but although in theory they could earn £125 on their £2500 balance, the account is only that high on payday and so the real cost to the bank is more like £50 or less for whole year. The bank earns more than that in a single month when someone forgets that their interest free period on a 21.9% credit card runs out and they still had £3k on it.

So long story short, there isn't a 'hidden catch'. They get the chance to sell you other products, and make money, and for that they will give you money. If you have the time and energy you can milk it.

They know some will, because the banks can read MSE forums just like we can. They also know that the majority of the 60m people in the country do not read MSE, and a portion of the people who read MSE will not have the savvy or the finances or the attitude to go out and put the effort in to work every "loophole" even if there is a forum page listing all the top deals that they could use if they could be bothered.

B_G_B

I don’t think that you are alone at all. I think that the majority of people take on a similar approach to you, dependant on their own circumstances. Which for me is a good thing. If too many people chased the best rates, I am sure that the banks could not sustain these particular current accounts.

For many years, when I was employed, I had a current account, (0% interest) and an old building society book account (very low interest). Took a redundancy package due to ill health. Ended up with a nice little wedge, but no regular income. Decided that it would be sensible to stretch the redundancy package. Originally opened up a savings account that paid better interest. Next move was to convert my existing current account (Lloyds) to Vantage. Could have done these simple things years ago. Hindsight eh! Since then I have latched onto the current account game. Also a couple of regular savers. Non (income) tax payer. Bit of time on my hands. Not that it takes too much effort. I quite enjoy it too. Can be a bit obsessive if I am not careful.

I have recently started to use a credit card for the first time in my life for a little cash back etc. Also done a couple of switches for the incentives.

badger09 wrote: »

oldfella, you might want to think again about cutting up 'superfluous' debit cards. If you ever decide to switch accounts in future, you'll almost certainly be asked for your debit card number from the switched account.

I'm rather late to the switching party so have only just found this out. Ordering a debit card (which I'd declined when I opened the now defunct account) will delay my switch - and my switching bonus, by at least a week

One of the old switched accounts didn’t have an associated debit card due to mistake by bank when account was originally opened. Card came printed as Mrs B_G_B instead of Mr B_G_B. Card was destroyed and cancelled with the bank long ago. Explained this to the bank that I switched to. (First Direct). No problem. Switched ok.




Last year I cleared approx £800 above what I would have received in best available instant access savings or ISA’s, and approx £1600 above what I would have received using my original two accounts. This is not meant as a boast. Just an example of what can be done if circumstances allow.

Just about everything I do, deserves a thank you to the people on these forums.
None of the ideas have been mine. I can take the ideas that I like and leave those that I don’t.

I have found no disadvantages doing any of these things, although I appreciate that other peoples situations may be very different. For example, would I want my money spread about too much if I was applying for a mortgage? Don’t know the answer to that one as it is not relevant to me. Just a thought, thats all.

I have not been tempted to spend more just because I have a few debit cards. I think that my spending habits are more about frame of mind. If I’m feeling “off key”, for any reason, I can use spending as a fix. The number of cards that I have is irrelevant.

In April a friend of mine was in a hurry to deposit money into an ISA in what she and many others refer to as ISA season.
I commented that for me, this year in April was more like current account season (Club Lloyds & TSB Plus). The comment went straight over her head. Still, it amused me. :rotfl: