Money-saving expert Martin Lewis has explained how people can make hundreds of pounds by switching bank accounts, but warns that the trick could cause problems for some.
On Martin Lewis’s ITV show Extreme Savers, he explained that banks often offer cash incentives to new customers to encourage them to open a checking account.
The incentives can be hundreds of pounds per switch, and switching banks multiple times can be a profitable ploy for the customer.
On the show, Martin featured a man who had managed to save £ 1,600 in the past five years by switching banks.
By shifting his banking business, David was able to save enough money to get a down payment on a house much faster than planned. He saved the money by switching often and had between 15 and 16 accounts open at the same time.
He said, “One of the banks gave me £ 250 as a cash incentive and because they were so confident with their customer service they offered an additional £ 100 to anyone who wanted to leave in six months,” he added.
“True to their word, they offered me an additional £ 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 reservations about the program.
One of the major issues is that opening multiple bank accounts can lower your credit score, which means switching bank accounts frequently can be a bad idea for those who already have low credit scores or are planning to borrow money from a bank.
Bad credit can result in banks rejecting applications for products such as mortgages and bank accounts, or even offering loans at a higher interest rate.
Martin stated: One warning – multiple switches can affect your creditworthiness.
“If you have an important application such as a mortgage about to file, I would keep my hands off it for now.”
His second warning relates to the amount of money required to claim the incentives.
Most rewards programs require you to transfer a certain amount of money to each account each month. This is usually done to encourage people to transfer their salaries to the new account.
However, Martin added that there was a way to get around this.
“As long as you send the money somehow, it doesn’t matter where it comes from,” he said.
“So you can deposit it into one account one day and into another account the next.”