If there’s one lesson we’ve learned from the last few weeks of headlines about ‘debanking’ and the mysteries of bank account closures, it’s this: have a back up plan. And that means having an alternative bank account set up, just in case.
Yes, I know it’s outrageous that we should have to have another account on standby just in case our bank decides to show us the door for no good reason.
No matter what you think about him, this issue is not all about Nigel Farage. Thousands of regular people have had their accounts frozen or closed for no good reason whatsoever over the last few years. These people have had to deal with banks that won’t talk to them, unclear appeals processes and Freedom of Information requests that reveal nothing, because the bank hasn’t written anything down about the closure.
I’ve spent the last 20 years campaigning for better regulations around bank account closures. It looks like these reforms are finally coming. Not nearly enough in my opinion. But a step in the right direction.
In the meantime, while I can help readers tackle the complaints process, it makes sense to have another account ready and waiting, so you can get on with your life while the matter is investigated.
In fact, there are loads of reasons why you might want to have another bank account set up and ready to go. Here’s my guide.
Read more: ‘My bank is shutting my local branch – where can I do my banking now?’
Why do I need more than one bank account?
There are lots of good reasons for having two or more bank accounts:
- So you can keep banking if your main account is frozen or closed
- As a way to separate your spending money from your bills
- To take advantage of special offers or other benefits associated with the new account
- To make the most of your savings
Let’s take a look at those options in a bit more detail.
When your account is frozen/or closed
Bank account freezing – where your account is effectively shut down while the bank ‘investigates’ something that they won’t tell you about – and closures seem to have been on the rise dramatically over the last few years. Readers have regularly been in touch to tell me about being locked out of banking facilities.
When your account is frozen or closed there’s literally nothing you can do apart from appeal to your bank to change their minds.
Having another bank account ready and waiting with a competitor means you can transfer all of your regular payments and commitments over while appealing to the bank.
Making the most out of your bills
The cost-of-living crisis has led to many people having a closer look at their spending and monthly budgeting.
It’s incredibly difficult to manage your spending, bills and unexpected costs all out of the same bank account. Even if you have an arranged overdraft, your bank will charge you ludicrous interest for simply using it – and this is by the day too. So slipping over your limit can be very pricey indeed.
Having a billing account separates out your responsibilities from your spending money, making it much easier to keep on top of the bills you can’t afford not to pay.
In addition, many banks and building societies have introduced budget features that show how much money you are spending on different categories (food, travel, entertainment, bills, etc.) These tools can help you budget.
Benefiting from special offers and deals
Some banks and building societies are offering switching offers of up to £200 if you set up a new account with them. There are always caveats and conditions though so check the small print before commiting and make sure it’s the right account for you.
Certain lenders also offer cashback when you make regular payments or shop in certain places.
Make the most out of your savings
Banks and building societies have just been given a blunt warning by regulator the Financial Conduct Authority (FCA) that if they don’t pass on better interest rates to regular and savings account customers, there will be repercussions.
This is important because one of the few advantages of rising inflation is the increase in savings rates. As the FCA’s latest statement has made clear, if you leave a big chunk of cash in a standard account with many banks, you’ll be getting a rubbish interest rate.
Moving your savings to an account that pays better interest is highly recommended. Savings rates increase the longer you ‘lock in’ your money. So if you don’t touch your cash for a few years, you’ll get a better rate of interest. You can see our round-up of the best savings accounts in our guide.
Read more: With interest rates forecast to fall, what should I do with my savings?
Why do banks close accounts?
Account closures are without a doubt, the most frustrating thing that can happen to most people. Yet, annoyingly, they don’t have to tell you why. Here are the reasons though.
- Suspicious transactions outside of the normal range in the account.
- Lack of use
- Suspected fraud
- Rudeness – most often bad behaviour in the branch or on the phone. And yes, this includes making repeated ‘frivolous or vexatious’ complaints.
- Support for unlawful activities. This most often includes things like terrorism, or violent fundamentalism, for example.
- Reputational risk to the bank
Banks always claimed these further reasons were untrue in the past, though many have admitted them now:
- You’re not making them any money
- Automated systems making mistakes
- Employees making mistakes
Read more: How much of your savings are safe in the bank?
What can you do if your bank shuts your account?
You can only really appeal a bank account closure if they’ve made a mistake. This isn’t easy though as the bank won’t usually tell you the reason.
Have a look at your statements and ask yourself if there’s any recent payments that look larger than usual, are unclear about where they might have come from or have gone in and out of your account quickly.
Don’t bother with the usual helpline. Call and ask to speak to the bank’s fraud investigation team and ask them if you can explain the transactions on the system that might have triggered your account being frozen or closed.
Mistakes happen far more than they actually should. For example, sometimes you might have been confused with someone with a similar name or account number or an employee might have just typed in the wrong thing into the computer.
If you don’t get anywhere, file a formal complaint.
Failing that, the Financial Ombudsman can look into your case for free. The Ombudsman can’t reveal to you what it’s been told by the bank confidentially, but it can check that information to see if it seems fair or accurate.
Read more: The problem with regular savings accounts
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