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 your bank decides to show you the door for no good reason. I’ve spent the last 20 years campaigning for the regulations around account closures to be radically changed – and for people to be told in simple terms why their accounts are being closed.

It looks like these rules around bank account closures might be finally set to change. Not nearly enough in my opinion. But a step in the right direction.

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 (FoI) requests that reveal nothing, because the bank hasn’t written anything down about the closure. Worryingly, when I’ve looked in to the majority of these cases, I can only conclude the decision is as a result of an error by the bank.

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.

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

Yes, it’s not fair. Yes, it’s Orwellian that your banking services are being removed without explanation. No, I can’t currently make the bank tell you why (currently). 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.

I’ll go in to the reasons why I think this is happening later. But for now, 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. Bear in mind though that your online banking details are also likely to be frozen or unavailable. So I’d recommend creating a short spreadsheet or list containing the details of the businesses and organisations you are committed to paying regularly. Make sure you save this or send the document to yourself with an innocuous title, like ‘holiday planning 2018’. This is because email and computer hacking is the biggest growth industry in the UK at the moment and fraudsters know all they have to do is type ‘password’ or ‘banking’ in to an email or laptop search drive to find your financial information in 0.0002 seconds. For that reason, why not consider using one of the many password protection or encryption services?

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 (I’ll tackle that rip off in another column!) So slipping over your limit can be very pricy indeed.

Having a bill payment 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 identify areas where you are overspending and make the necessary cuts.

Benefiting from special offers and deals

Of course, you can always cash in with a new bank account – even if you keep the old one.

Some banks and building societies are offering up to £200 if you set up a new account with them. There are always caveats and conditions though. I’ve looked through the deals available right now and while enticing, check the small print before committing. Some accounts will require you to pay in your wages, or have a minimum amount of cash paid in to the account each month. Others have rules the say you must have bill payments or regular payments regularly going through the account, or requirements to keep a certain amount of cash in credit. You may find that there are account fees too.

It’s not just financial incentives to set up accounts though. Some banks and building societies 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 saving account customers, there will be repercussions.

This is important, because of the few advantages of rising inflation is the increase in savings rates. A word of warning though. If inflation comes down, then savings rates will be the first to slip. However, 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 also a must. 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. Some of these notice or fixed accounts lock in your cash for just a month or even seven days. Bear in mind though that these rates can change and will drop if inflation stabilises and reduces.

Before you sign up though, think about what how much money you’d need should an emergency or financial necessity arise. Most experts suggest having up to six months of emergency money accessible more or less instantly to cover emergencies.

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 vexations’ complaints.
  • Support for unlawful activities. This most often includes things like terrorism, or violent fundamentalism, for example.
  • Reputational risk to the bank (as with ‘you know who’)

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.

What can you do if your bank shuts your account?

You can only really appeal an account closure if they’ve made a mistake. This isn’t easy though.

Your bank won’t usually tell you why it’s closing your account. However, if you think some unusual payments on your account have caused the problem then you might be able to appeal. 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 go 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 who is on a blacklist. Or an employee might have just typed in the wrong thing into the computer.

If you don’t get anywhere, as for a written ‘final decision’ to your complaint The higher up you go, the more likely someone will take a pragmatic look at the situation. Failing that, the Financial Ombudsman can look in to 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.

Featured in Times Money Mentor – Martyn James

https://www.thetimes.co.uk/money-mentor/banking-saving/why-we-all-need-at-least-two-bank-accounts

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