UK savers are being urged to exercise caution as they chase lucrative cash incentives offered by banks for opening new current accounts. While the competition between providers has led to attractive perks, financial experts warn that managing several accounts can carry significant hidden risks.
The Lure of Cash Bonuses and Perks
In a fiercely competitive market, banks are actively tempting customers to open second, third, or even more current accounts. The incentives on offer are varied and can be compelling, ranging from one-off switching bonuses of several hundred pounds to ongoing benefits like cashback on bills, interest on balances, and travel insurance.
MoneySavingExpert, founded by Martin Lewis, confirms there is no official rule against holding multiple accounts, whether with one bank or several. This has led many to strategically 'game' the system to maximise rewards. Comparison site GoCompare also notes that using separate accounts for different budgeting purposes—such as bills, daily spending, and savings—can be a sound financial organisational tactic.
The Credit Score Pitfalls You Must Avoid
However, the strategy comes with a major caveat that can catch unwary consumers out. Each application for a new current account typically triggers a 'hard search' on your credit file. MoneySavingExpert emphasises that submitting several applications in quick succession can temporarily lower your credit score, making you appear financially overstretched to future lenders.
Furthermore, holding multiple overdraft facilities, even unused ones, can paint a picture of potential financial strain to credit reference agencies. Misusing these overdrafts across several accounts is a surefire way to raise red flags. The advice is clear: apply for new accounts gradually, not all at once, to protect your credit profile.
Practical Management and Protection Risks
Beyond credit scores, there are everyday practicalities that become complex with numerous accounts. Many reward-bearing accounts require minimum monthly deposits or a set number of direct debits. Juggling these conditions across multiple providers is a recipe for missed requirements and lost perks.
GoCompare also warns that spreading funds too thinly makes it harder to monitor balances, increasing the risk of missed payments, incurred fees, or undetected fraud. There is also a crucial safety net consideration. The Financial Services Compensation Scheme (FSCS) protects savings up to £85,000 per person, per banking group. If you hold more than this sum across multiple accounts within the same banking institution, the excess is not protected.
Expert Advice: Proceed with Discipline
Personal finance expert Rebecca Goodman, cited by MoneySavingExpert, acknowledges the appeal of the rewards but urges savers to do their homework. "Before you apply for a new account, it's well worth researching how much you need, if it will actually save you money, if there are any fees to pay, and if you'll meet the requirements," she advises.
The consensus from experts is that while managing multiple current accounts can be beneficial for the disciplined and organised, it is not a risk-free endeavour. The potential rewards must be carefully weighed against the threats to your credit health, the administrative burden, and the need to ensure your money remains fully protected under the FSCS limits.
