Switching banks the easy way (the proxy current account)
If you’re interested in personal finance, and having your money work for you, then chances are you’ve switched providers since opening your account, and in some cases, have done so multiple times. This will typically have been either to put your cash into accounts with better benefits (such as free perks, higher interest or a better app), or maybe just to take advantage of some of those heft switching incentives, but either way, no doubt resulted in a couple of complications:
- Having money spread across accounts makes you uncertain which account has what in it
- Multiple bank cards and multiple PIN numbers can be a pain (and a dangerous one at that)
- Remembering your bank details becomes pretty much impossible (and so getting people to send you money is a little tricky)
- During a switch, you lose access to your cash
These were all problems I was facing, and they were stopping me from switching, losing me hundreds of pounds a year as all of these £1–200 switch incentives passed me by. So, I decided to come up with a solution: a proxy account.
What is a proxy account?
The way a proxy account works, is that you have a single, free to use current account with a reputable high-street bank who rarely have switching incentives. You fill that account with an amount of cash that can get you by any time you need to make a payment or take cash out at an ATM, let’s call it £200. You change the associated debit card’s PIN to one you can remember, and then keep the debit card for that account on your person at all times. Now, you have a proxy account, so commit its account number and sort code to your memory, and you’re done with step 1.
For step 2, you now open a 2nd current account. This account will be the one you use to switch, and also the one where the bulk of your money sits, so bear this in mind when deciding who to open it with. Once you’ve signed up for online banking on this account, you can put it’s debit card in a drawer and forget about it; ideally, you’ll never need to use it.
Now that you have both accounts, a little further setup is required. Start by setting up each account as a payee from each other, so it’s easy to move money around. Next, set your direct debits to come out of the 2nd account (as this will be where the bulk of your money sits), and have your salary and other income go into it.
With this approach in place, you can still take cash out (if you need to — but come on it’s 2019), can still pay cash in (same point). In fact, should you ever need to, you can even write a cheque from your proxy account and not worry about switching before someone cashes it, or waiting 2 weeks after every switch to receive your new chequebook in the post.
The benefits
Now you may be thinking to yourself, “what on earth is the point in all of this”, and it’s a fair question to ask. So here are the benefits to this approach:
Security
If you followed the steps above to the letter, then the debit card attached to the bank account containing the majority of your money has never been used. This means no risk of it being skimmed, no risk of someone using it for something they shouldn’t do, no contactless fraud and no danger of you losing it on a night out. The majority of your money is in a locked vault, the key to which has all but been thrown away. This is a whole lot better than walking round with the key in your pocket 24/7, whether your PIN provides the extra layer of security or not.
Switching simplicity
Without causing you any disruption whatsoever, you can now safely switch your 2nd account between providers, pocketing £1–200 every few weeks or months (depending on how aggressive you are), without ever losing access to 100% of your money. No matter what stage of the switch you’re in, you’ll have cash available to withdraw, a chequebook you can use, and an online bank you can make payments from, all courtesy of your proxy account.
Of course, now that switching is so much simpler, you’re going to be much more likely to do it, so you might just see yourself earning a whole lot more money, too!
Simplicity
Over the course of a few years, you might get through 1, 2 or 15 bank accounts, who knows. With this approach, you can give the same account number and sort code to people no matter how many times you switch, because you’ll always have your proxy account.
And don’t worry, so long as you use the current account switching service every time you switch, all your direct debits and salary payments should switch with your 2nd account, so you don’t have to worry about any of that (though you should always check anyway!).
The downsides
Aside from the obvious downside of having to set this whole thing up in the first place, there are a couple of other points worth mentioning.
Credit card users only
If you’re not using a credit card for all of your purchases ( why not!?), then this approach has a fatal flaw with you; your going to spend everything on your proxy account’s debit card pretty quick. Of course, you can up the buffer amount on said proxy account to enable you to keep spending (and hey, maybe this will serve as a method of budgeting!), but ideally, credit cards are the best method here. That’s because by using a credit card, you store your purchases up, and then pay for them in one go from your 2nd account (which will be paid via a direct debit that switches with said account).
Minor admin required
As you might have guessed, you’re not going to get off without any further effort once this is all in place, though it will be minimal. All you’ll really need to do is ensure you keep your buffer topped up on the proxy account (which for me is a task that only needs doing every few months), but it’s still something to consider when looking at this approach.
In conclusion
So there you have it; my approach to banking. It keeps your money safer and earns you money while you do it, what more could you want?
Originally published at http://www.duncanmcardle.com on April 14, 2019.