Martin Lewis issues warning to anyone switching bank accounts – including at Santander, Nationwide and NatWest
CUSTOMERS thinking of changing banks have been warned to think twice before making the switch.
It comes after a series of banks including Nationwide, NatWest, Lloyds, Santander and First Direct have offered free cash to make the switch.
Money Saving Expert Martin Lewis has urged bank account holders to think carefully before committing to the switch.
He said: "If you do one switch, it's an application on your credit file which has a very minor, short-term negative effect.
"Lots of those in a short space of time can have an impact. Banks also like to see evidence of longevity, so that's also slightly negative.
"So I wouldn't switch my bank account if I had a mortgage application during the next two months."
Read more money news
The 52-year-old added that the switch only affected those who regularly switched banks.
He added: "Switching very regularly to make money can have a bigger impact.
"If you're rejected, it could be for one of many reasons, for example... you've got a poor credit record, you've had past dealings with that bank where you've missed payments or the bank doesn't think you'll be a profitable customer.
"But don't assume because one bank doesn't want you, none of the others will. All the same, don't just apply everywhere as it can do more damage to your credit record.
"Instead, you need to do two things – first, ask the bank why it rejected you. Its answer may be vague, but it should tell you if you were rejected because of your credit record."
Meanwhile, a huge online bank with 3.6 million customers is set to axe a popular feature from current accounts.
Starling Bank is to stop paying all of its customers interest on their current account balances in the new year.
As it stands, the digital bank pays 3.25% interest on balances up to £5,000.
Customers who currently have a sole or joint current account with Starling will continue to benefit from the perk, as well as new customers, until this date.
The bank said it had notified all current customers over the last two weeks.
It comes after the Bank of England (BoE) dropped the base rate from 5% to 4.75% earlier this month.
The base rate is the rate charged to high street banks, which is then reflected in mortgages in savings rates.
Starling increased its interest rate to 3.25% in September last year, and it has remained the same since.
READ MORE SUN STORIES
The announcement from Starling Bank comes as several other banks cut rates on savings accounts.
Nationwide cut rates on a host of its savings accounts for the first time in four years at the beginning of this month.
What is the base rate and how does it affect the economy?
NINE members of the Bank of England's Monetary Policy Committee meet eight times each year to set the base rate.
Any change to the Bank's rate can have wide-reaching consequences as it directly influences both:
- The cost that lenders charge people to borrow money
- The amount of savings interest banks pay out to customers.
When the Bank of England lowers interest rates, consumers tend to increase spending.
This can directly affect the country's GDP and help steer the economy into growth and out of a recession.
In this scenario, the cost of borrowing is usually cheap, and the biggest winners here are first-time buyers and homeowners with mortgages.
But those with savings tend to lose out.
However, when more credit is available to consumers, demand can increase, and prices tend to rise.
And if the inflation rate rises substantially - the Bank of England might increase interest rates to bring prices back down.
When the cost of borrowing rises - consumers and businesses have less money to spend, and in theory, as demand for goods and services falls, so should prices.
The Bank of England is tasked with keeping inflation at 2%, and hiking interest rates is a way of trying to reach this target.
In this scenario, the losers are those with debt.
First-time buyers will lose out to cheaper mortgage rates, and those on tracker or standard variable rate mortgages are usually impacted by hikes to the base rate immediately.
Those on a fixed-rate deal tend to be safe if they fixed when interest rates were lower - but their bills could drastically increase when it's time to remortgage.
The cost of borrowing through loans, credit cards and overdrafts also increases when the base rate rises.
However, the winners in this scenario are those with money to save.
Banks tend to battle it out by offering market-leading saving rates when the base rate is high.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
Plus, you can join our Facebook group to share your tips and stories