Managing multiple current accounts

If you need multiple current accounts, either to manage your money or to maximise interest, there are some things you should be aware of.

The current account market has become increasingly competitive in the years since the 2007-8 financial crisis, which is great news for customers.

With banks and building societies vying for your custom, there are some great offers to be had, including bonuses for switching and high interest rates on in-credit balances.

But while it’s never been easier to compare and switch current accounts, using tools such as midata to find the best option for you, one current account might not fully meet your needs.

There’s nothing to stop you taking out multiple current accounts, but there are a few issues you need to be aware of to make the most of them.

Advantages of multiple current accounts

Having several current accounts can have a number of benefits.

Switching offers

One reason people might open extra current accounts is to take advantage of switching offers, such as cash bonuses.

Perhaps you’re happy with your everyday current account provider, but a £100 switching bonus has caught your eye - it’s not unknown for people to open a second account with their existing current account provider and then switch that account rather than their main one.

Be aware that the bank with the switching offer may have taken steps to guard against this, such as insisting on you funding the new account with a minimum monthly amount, or having several direct debits set up on the account.

Savings and interest

Current accounts can offer better interest rates than savings and Isas, so they can be a good home for your cash by standing in as an instant-access savings account.

If you want to save this way but don’t want to mix up your savings with your daily spending, you might want to set up a separate high-interest current account.

As most high-interest current accounts often have maximum balances on which they pay interest (usually of a few thousand pounds), you might find you need quite a few accounts to hold all your savings.

Again, you’ll need to be aware of any minimum funding limits and other conditions you need to meet with the account to make the most of it and avoid charges.

Organisation

If you’re managing several incomes, for instance a rental property as well as your wages, you might want to keep your accounts totally separate by using multiple current accounts.

This might also be the case if you’re running a small business or charity, although in some cases a business current account or charity account might be more appropriate.

FSCS protection

The Financial Services Compensation Scheme (FSCS) provides huge peace of mind for the UK's savers by offering a government guarantee that money will be protected if a bank, building society or credit union goes bust.

However, limits apply per person, per firm, so savers with large savings pots can better protect their assets by spreading them across multiple institutions.

Disadvantages of multiple current accounts

Multiple current accounts can help you maximise your cash, but you need to be aware of their possible impact.

Remembering details

You’re expected to remember your online banking log-in details and Pin numbers without writing them down, which can be quite taxing with multiple security details for each account.

Remember, if you write details down anywhere or store them online, you’re opening yourself up to the risk of financial fraud.

Minimum funding and direct debits

Meeting the conditions of multiple current accounts requires serious organisation.

As many current accounts need funding with a minimum monthly amount, you’ll have to make sure you transfer enough money between accounts to maintain them all.

Some accounts also ask you to have several direct debits set up on them and this can be even trickier to manage while keeping your personal finances organised.

Maximum balance for interest

While in-credit interest rates on current accounts can sometimes blow savings rates out of the water, the caveat is that they’re usually only paid on relatively small balances, usually of a few thousand pounds.

This means that if you want to use these current accounts as a home for your savings, you’ll have to open and maintain even more accounts to do this - and as mentioned above, that means you’ll have to be very organised with your finances.

Credit history impact

Whenever you apply for a current account it’s recorded on your credit history.

Usually this isn’t a problem, but multiple applications in a short space of time can harm your ability to get credit in future.

You can minimise this by spacing out applications as much as possible and not applying for overdrafts you don’t need.

You may not benefit from compound interest

As current accounts typically have a set limit above which no interest will be paid, they're unlikely to be the best vehicles for long-term saving.

Compound interest is simply interest that's paid on interest, but it's important to understand the huge long-term benefits it can have on your assets - and the huge costs it can lead to if you have long-term debt.

Tactics for managing multiple current accounts

Although a couple of current accounts can be useful for making the most of your money, especially if you have more than one income, juggling multiple accounts each month isn’t for the faint-hearted.

However, the rewards in terms of switching bonuses and interest could potentially add up to hundreds of pounds a year.

Bank online

It’s far easier to keep track of lots of current accounts if you use online banking. You’ll be able to check your accounts at any time of the day or night, rather than waiting for monthly statements.

Set up circular funding

When it comes to meeting minimum funding for accounts, there's usually nothing saying you have to keep your money in the account - once you've deposited it in the account you're free to take it back out again.

In the age of internet banking, this means it's simple to maintain a number of accounts requiring minimum funding by setting up standing orders to pass your money from one to another.

Simply create an automated payment on certain days of the month so your money moves through each account in turn before landing back in the account it started in.

Done right, this can be a very effective way to fund multiple high interest accounts you’re using for savings - but you will need to give some thought to the cycle of payment to make sure you don’t inadvertently send any of the accounts overdrawn at any point.

Use joint accounts

Many banks limit you to just one high interest or bonus paying account per customer.

However, if you bank jointly with someone else, some will allow you to have one personal and one joint account.

This means that a couple might be able to have three high-interest paying accounts with one bank - one personal one each and a joint one between them.

Start slow

Although it’s easy to be wooed by the glut of great deals out there, it’s a good idea to start slowly with multiple accounts.

Not only will this gradually let you get used to the organisation needed, but you’re less likely to damage your credit history with a number of applications made in a short space of time.

Have a donor account

One tactic some multiple account users have to make the most of switching bonuses is to create a donor account.

This is where they set up a second account, often a simple basic bank account, and then set up a few small, regular direct debit payments on it.

They then use this account to switch to providers offering bonuses.

Be aware that this tactic can have a detrimental effect on your credit record if you make frequent applications, while some providers may refuse you an account on the grounds it’s not your main account you’re switching or it isn’t funded by your salary.

By Derri Dunn