Money-saving expert Martin Lewis has explained how people can make hundreds of pounds by switching their bank accounts but has warned the trick could cause problems for some.
On his ITV show Martin Lewis’ Extreme Savers he explained that banks often provide cash incentives to new customers to entice them to open a current account.
The incentives can be hundreds of pounds per switch and if you change banks multiple times it can be a profitable trick for the customer.
On the show, Martin introduced one man who had managed to save £1,600 by switching banks over the last five years.
By moving his banking around David was able to save up enough cash to help him get a deposit on a house far quicker than he had planned. He saved up the cash by switching often and had between 15 to 16 accounts open at one time.
He said: “One of the banks gave me £250 as a cash incentive and because they were so confident in their customer service they then offered anyone who wanted to leave in six months another £100,” he added.
“True to their word, they offered me another £100 when I left.”
But Martin warned his viewers that switching bank accounts might not be the right move for some viewers and issued two caveats to the scheme.
One of the most important issues is that opening multiple bank accounts can lower your credit score, meaning that frequently switching bank accounts might be a bad idea for those who have a low credit score already or are planning to borrow money from a bank.
Having a poor credit score can lead to banks rejecting applications for products such as mortgages and bank accounts, and can even lead to loans being offered at a higher rate of interest.
Martin explained: One warning – multiple switching can have an effect on your credit score.
“If you’re shortly to do an important application like a mortgage, I’d steer clear for the mean time.”
His second warning relates to the amount of money needed to claim the incentives.
Most of the reward schemes require you to move a certain amount of money into each account every month. This is usually to encourage people to move their salaries over to the new account.
However, Martin added that there was a way to get around this.
“As long as you’re transferring that money in somehow, it doesn’t matter where it comes from,” he said.
“So you can pay it into one account on day and pay it into another account the next.”