Flow funds into strong currents

How to switch bank accounts if you're hard done by on interest or overdraft rates

Instead of chasing better rates of interest, most of us switch current accounts because we are dissatisfied with the service from our bank, according to research from consultants at Managing the Service Business (MSB). But even if you've been with a bank for years and are happy with the way it has treated you, there may be products out there that are more suitable for your needs.

The big four high-street banks – Barclays, HSBC, Lloyds TSB and NatWest – have been heavily criticised for paying just 0.1 per cent interest on balances in credit, yet charging high rates for overdrafts. NatWest has the biggest rates – 17.9 and 33.8 per cent respectively for authorised and unauthorised overdrafts – on its Current Plus account.

The banks defend these rates by arguing that current accounts aren't designed for holding large balances. Most people use them for transactions, keeping enough cash in their account to cover monthly outgoings. Any extra should be moved to a savings account.

If you do this and are happy with the service you receive, there may no reason to move. But if you keep a sizeable balance in your current account, or go overdrawn regularly, it could be worth switching.

Citibank and Smile, for example, offer an interest-free overdraft of £500, though watch out if you exceed this sum as Citibank charges 35 per cent on unauthorised overdrafts (14.25 per cent for authorised extensions). Smile's rates are lower at 9.9 per cent for authorised overdrafts and 22 per cent if you exceed the £500 limit without permission.

First Direct offers an automatic overdraft allowance of £500, but you will pay 12.9 per cent interest.

Intelligent Finance (IF), Halifax and Cahoot have the lowest authorised rates for those who are constantly overdrawn. IF charges 9.75 per cent, Halifax 9.3 per cent, and Cahoot between 6.4 and 8 per cent depending on whether or not you pay a monthly fee.

If you're always in credit, the interest on balances is the main consideration. Internet banks offer the best rates: Cahoot pays 6 per cent interest to those willing to forgo a chequebook (5.9 per cent with a chequebook); IF pays 4.1 per cent on accounts in credit; and Smile 3.81 per cent.

For those who prefer branch banking, Halifax pays 3 per cent on its current account. From January next year, Bank of Scotland will be improving its rate from 0.1 per cent to 2 per cent below base rate (based on current rates, this would be 3 per cent).

An increasingly popular option is to offset your current account and savings against your mortgage. Virgin One, Royal Bank of Scotland and Britannic Money all offer current account mortgages. IF and Woolwich Open Plan let you keep your savings and borrowings separate but their value is offset against each other to reduce the interest you pay on the mortgage.

Many people are put off switching accounts because they think it is too complicated. However, 67 per cent of those surveyed by MSB said the process was easy. At present, banks should send customers' details on to their new bank within 10 days, and the whole switching process should be complete within 12 weeks.

The DeAnne Julius report, produced for the Monetary Policy Committee this summer, has called for this to be reduced to five days and five weeks respectively. Banks failing to do this could be fined.

Gordon Suttie, a consultant with the telecoms giant BT, recently transferred his current account to IF. "My wife and I were consolidating our finances and structuring them in a more organised way. We have recently taken out a mortgage with IF and decided to move our current accounts over as well.

"The whole process was really straightforward. I just logged on to the website and inputted my existing account details, direct debits and standing orders. The next thing I got was the notification of changes to my direct debit and standing order arrangements from the individual companies. I think it took between six and eight weeks.

"The whole process has been very slick, and I'm pleased because I'm getting a good rate and my money's working harder to reduce the mortgage."