Martin Lewis has revealed how switching bank accounts can allow people to make hundreds of pounds, but he also added that the trick could actually cause problems for some.
The finance guru spoke on his ITV show Martin Lewis’ Extreme Savers and explained that cash incentives are often provided by banks to new customers in order to encourage them to open a new current account.
Often, these incentives can be hundreds of pounds per switch, meaning that changing banks a number of times can prove to be a very profitable move for the customer.
Martin introduced a man on the show, who had saved £1,600 by swapping banks many times over the last five years, reports Wales Online.
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.”
However, Martin warned his viewers that switching bank accounts might not be the right move for some viewers and issued two caveats to the scheme.
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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 meantime.”
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.”