First Direct ups the current account switching stakes with £125 bribe

First Direct has upped the ante in the current account switching war with a £125 bribe aimed at new customers opening their first account with the bank.

It matches its parent bank HSBC’s £125 cash offer, placing it joint top of the current account leaderboard in terms of cold hard cash incentives.

The offer, which began this week, will run until 12 July and will be available to new bank customers who switch their full banking to first direct using the Current Account Switch Service.

First Direct and HSBC are offering the best cash incentives to switch current accounts at the moment. Both are offering new joiners £125.

In order to qualify, joiners will need to pay in at least £1,000 within three months of opening the account.

‘It’s an understatement to say it’s been a challenging 18 months for the UK,’ said Chris Pitt, chief executive of First Direct.

‘And while we’re still taking cautious steps towards easing restrictions, we wanted to celebrate this by providing switchers with a little extra cash to help as we slowly get back to normality.’

How does it compare to other cash incentives?

Although HSBC are the only other bank offering a cash incentive to new joiners, it is targeting customers for its Advance and Premier Accounts, which means it is rather more exclusive.

For the Advance Account, you must pay in a minimum of £1,750 per month, and for Premier account you must have an annual income of at least £75,000 and have at least one of either a mortgage, an investment, life insurance or protection product with the bank.

Virgin Money offers perhaps the next most eye-catching bribe, albeit in wine rather than cash.

How to earn £125 in a savings account

To put the First Direct offer into context, to earn £125 of interest in the best buy easy-access savings rate of 0.5 per cent, you’d need to hold £25,000 in it over the course of a year. 

For anyone switching using the current account switching service, they will receive a free 12 bottles of wine from Virgin Wines, said to be worth £138.

Switchers will also receive £50 from Virgin Money to donate to any Virgin Money Giving charity.

Unlike HSBC, Virgin Money’s offer is a little more inclusive, with switchers needing to only set up two direct debits and deposit at least £1,000 into a linked savings account within 31 days of the account opening.

What other incentives should switchers also consider?

Headline grabbing cash incentives can be a big draw for some, but it is important to consider the other factors that make switching worthwhile.

Customer service, overdraft limits, interest rates, cashback, saving perks and other niche benefits such as cinema tickets are all factors that count for something.

Customer service is a key consideration for many bank customers with the digital only banks such as Starling and Monzo bank often stealing the show.

Starling Bank, for example, is rated as the number one provider for service levels, according to the latest annual survey by the consumer group, Which?

The comparison site, Finder, in its latest annual customer satisfaction survey, found that digital bank Monzo topped the list for customer service levels, although First Direct is often found in the top few banks for service. 

The most commonly cited reasons for favouring a new account continue to be ‘non-financial’ according to the Current Account Switch Service, with online and mobile banking offerings and better customer service cited as the most common reasons why customers switch bank accounts, rather than upfront welcome bonuses.

Account Perks Conditions
First Direct 1st Account   £250 interest-free overdraft
£125 to switch. Now open to M&S Bank customers looking for a new current account.
Pay in £1,000 within 3 months of switching through CASS. If you want to leave and earn the bonus you need to pay in £1,000 for 6 months.
Nationwide FlexDirect 2 per cent interest on up to £1,500 and fee-free overdraft, both for the first year only. Pay in £1,000 a month.
Halifax Reward The choice of £5 a month paid into your account, two film rentals or three magazine rentals or a free cinema ticket each month. Get up to 15 per cent cashback when shopping at certain retails including The Costa and Sky Switch through CASS by 4 May 2021.
£3 monthly fee or pay in £1,500 a month. Spend £500 on your debit card each month or maintain a balance of £5,000.
HSBC Advance  £125 to switch. Now open to M&S Bank customers looking for a new current account. Switch using CASS with two direct debits or standing orders. Must not have been a First Direct or HSBC customer since 2018.
Club Lloyds  Pays 0.6 per cent on up to £4,000, and 1.5 per cent on £4,000 – £5,000. £3 monthly fee or deposit £1,500 a month, pay out two direct debits.
Santander 123 Santander will pay 0.3 per cent on balances up to £20,000 plus up to 3 per cent cashback on bills. £5 a month fee. You must pay in £500 a month and maintain two active direct debits.
Royal Bank of Scotland/NatWest Reward  £5 a month back in rewards and 1 per cent back from certain partner retailers. £2 monthly fee. Must set up two direct debits for £4 a month, and then log into mobile banking once a month for £1 each.
Starling Bank current account  0.05 per cent interest on balances. Fee-free spending and ATM withdrawals abroad. Online and smartphone-only bank
Virgin Money  12 bottles of wine ‘worth £138’ to switch and a free £50 donation to a charity registered with Virgin Money Giving. Account pays 2 per cent monthly interest on up to £1,000 and comes with a linked easy-access account paying 0.5 per cent (0.35 per cent from April). Apply online, switch through CASS with two direct debits and pay in £1,000 to a linked easy-access account

This is perhaps one reason why Monzo and Starling continue to perform strongly and steal customers away from the established banks.

Starling Bank for example, gained 17,756 in the final three months of 2020 while only losing 1,179, whilst HSBC – which includes First Direct in this data – on the other hand lost 3,944 more than it managed to gain in the same period.

For those looking for the best interest rates, Nationwide are offering 2 per cent interest on up to £1,500, albeit for the first year only – afterwards it drops to 0.25 per cent.

Lloyds is offering competitive rates with 0.6 per cent on up to £4,000 and 1.5 per cent between £4,000 and £5,000.

On top of its wine offer, Virgin Money also offer 2 per cent monthly interest on up to £1,000.

Santander offers 3 per cent cashback on selected household bills via its 123 account – although this is capped at £5 each month.

Free cash will always be a massive draw for current account switchers but customer service, overdraft limits, interest rates, cashback are all important factors to also consider.

Free cash will always be a massive draw for current account switchers but customer service, overdraft limits, interest rates, cashback are all important factors to also consider.

Like with Virgin, many current account providers offer additional little perks and lifestyle benefits, which might make them more appealing to some switchers.

For example, Club Lloyds and Club Lloyds Platinum accounts allow customers each year to choose from either six cinema tickets, an annual digital Gourmet Society membership, an annual magazine subscription or 12 digital movie rentals.

‘It can be worth switching your current account to take advantage of the cash incentives on offer or to use any new features that you think will be beneficial to you, such as cashback on bills,’ said Michelle Stevens, banking expert at the personal finance comparison site, Finder.

‘If you’re already happy with your existing current account or don’t have the need for extra features, then you’ll have to weigh up whether any cash switching bonus is worth changing to a new banking provider.’

‘Although the switch itself can be a quick process, you’ll have to get used to new internet and mobile banking platforms, and different branch locations, plus you can’t always be sure whether a new provider’s customer service approach will suit you until you’ve switched.’

Overdraft is another key consideration for current account customers.

The £125 cash incentive is not the only thing going for the first direct 1st current account.

Customers benefit from their first £250 of any overdraft borrowing being interest free, which is the most generous offering of any bank, according to Moneyfacts data.

‘With agreed overdrafts being charged at around 40 per cent at most banks today, that’s worth having if you frequently pop into the red,’ said Andrew Hagger, personal finance expert at MoneyComms.

Another factor also to be wary of are account fees, which can be incurred in some cases.

For example, Halifax’s Reward Current Account and Lloyds’ Club Lloyds account both come with £3 monthly account charges whilst Santander charges £4 for its 123 Account.

Halifax and Lloyds waive the account fee as long as £1500 is paid into the account each month, whilst Santander’s 123 account cannot be waived.

Is it easy to switch and should you?

Despite involving a little bit of online form filling, the process should work seamlessly, according to Andrew.

‘Switching is simple and straightforward these days thanks to the Current Account Switching Service,’ said Hagger.

‘It can all be done within 7 working days, on a date you choose, plus there’s a guarantee that you’ll be refunded any bank charges incurred if anything does go wrong.’

With the vast majority of banks signed up to this CASS scheme, once the new bank provider is selected it will take care of the whole process for you.

Any regular incoming payments, such as salary and outgoing payments, such as direct debits will be automatically moved over for you, along with your account balance.

Since the service launched in 2013, the CASS has facilitated over 7.2million account switches

Of those who completed a switch using the CASS, 71 per cent say they prefer their new current account, with only 3 per cent stating that their new account was worse

For customers fed up with poor service or a lack of perks at their existing bank – switching can be a great option.

‘Loyalty rarely pays and there are several providers currently offering perks or a cash incentive to new customers so it’s always worthwhile to consider a switch, sometimes checking the market every few months or so can mean finding a better deal,’ said Rachel Springall, finance expert at Moneyfacts.

‘Consumers may be feeling more confident to switch their current account as we ease out of lockdown, but there is no guarantee the current switching perks will be around for long.’

But finding a current account that works best for you, may mean looking past headline grabbing cash incentives.

‘The value and package of a current account is what makes an attractive deal, it’s always wise to compare perks alongside any charges and service,’ said Springall.

‘Over the years there have been challenger banks taking a slice of the current account market under the CASS and these brands offer high levels of service and a straightforward package.’

‘Consumers can find service and simplicity a great feature when they are choosing a bank account.’