UK consumers are being urged to exercise caution as they chase lucrative bank switching bonuses, with warnings that opening too many current accounts could backfire financially.
The Lure of Cash Incentives and Perks
In a fiercely competitive market, banks are aggressively tempting customers to open new current accounts with a range of incentives. These include one-off cash bonuses, cashback on household bills, interest on balances, and perks like travel insurance. The strategy is proving successful, with millions now managing two, three, or even more accounts to scoop up these rewards.
Consumer champion site MoneySavingExpert, founded by Martin Lewis, clarifies that there is no official rule against holding multiple current accounts, whether with one bank or several. Different accounts can serve different purposes, from separating bills and everyday spending to creating a financial safety net in case of a lost card or frozen account.
The Hidden Pitfalls for Your Finances
However, experts are flagging significant risks. A primary concern is the impact on your credit score. Each new account application typically triggers a hard credit check, and several applications in quick succession can temporarily dent your credit rating, making you appear desperate for credit to potential lenders.
Furthermore, managing multiple overdraft facilities can make your finances look overstretched, especially if you use several at once. While simply having multiple accounts doesn't automatically harm your score, misuse of overdrafts or a flurry of applications can raise red flags.
Practical management is another hurdle. Some accounts require minimum monthly deposits or a set number of direct debits to qualify for benefits—conditions easily forgotten when juggling several logins and balances. Spreading money too thinly increases the risk of missed payments, incurring fees, or even missing signs of fraud.
Compensation Limits and Expert Advice
Another critical consideration is the Financial Services Compensation Scheme (FSCS) protection limit of £85,000 per person, per banking group. For those with larger savings, spreading funds across different banking groups can enhance protection, but this requires meticulous management to ensure coverage.
Personal finance expert Rebecca Goodman, cited by MoneySavingExpert, acknowledged the tempting rewards but advised thorough research. "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 said.
Both MoneySavingExpert and comparison site GoCompare conclude that multiple accounts can benefit disciplined users who tightly control balances, fees, and overdrafts. Their key recommendation is to apply for new accounts gradually, not all at once, to safeguard your credit profile while capitalising on the competitive market.
