Safety in numbers
Financial providers are also increasingly reserving their best deals, whether it’s a personal loan, credit card or even savings account, for their existing customers. Technically, this is known as a linked product or a linked account.
“The fact a bank can already see a customer is operating one account successfully provides some security that they will do the same with another one,” explained Tim Moss, head of loans at moneysupermarket.com. “It’s all part of banks’ and building societies’ wider cherry-picking strategy.”
Last week for example, Nationwide Building Society launched a personal loan exclusively for its FlexAccount holders (the building society’s current account). With a typical annual percentage rate (APR) of 7.70% (on borrowing between ₤5,000 and ₤14,999) the deal was rightfully flagged as the ‘lowest rate on the market’.
Chris Rhodes, product and marketing director at Nationwide, said: “We are rewarding our current account customers with the lowest personal loan rate in the UK. This will be the first of many offers for Nationwide current account customers over the coming months.”
However, it’s important to remember that not all ‘linked-accounts’ are market-leading deals. For example, HSBC is offering a typical personal loan rate of 8.70% to current account customers, while the rate available to current account customers from Royal Bank of Scotland is 11.4%. Yet Alliance & Leicester has a loan with a typical rate of 7.90% that is available for anyone to apply for - and not restricted to existing customers only. If you have a Nectar card, Sainsbury’s Bank is also offering a loan with a typical rate of 7.90% (if you don’t already have a Nectar card you can sign up for free at nectar.com).
Bear in mind, however, that the leading personal loan rates on the ‘open market’ are only available to those with excellent credit scores. If your credit history isn’t perfect you might have more chance of being accepted for a loan if you apply to your current account provider - because of the existing relationship you have with the bank it may be more willing to lend to you than a provider you have no past history with.
It’s not only preferential loan rates that banks are making available to current account customers. NatWest and Royal Bank of Scotland offer their existing customers a Platinum Credit Card complete with a 15-month interest-free period on balance transfers. HSBC's Bank Credit Card also offers a 15-month interest free period. Again, only current account customers are eligable to apply.
These are highly competitive deals that are worth considering if you've got an outstanding debt on another card and are looking to cut your interest payments. Only the Virgin Credit Card beats them – it offers a 16-month interest-free period on balance transfers.
If you’re looking for a credit card to spend on, there are better alternatives. Tesco’s Clubcard Credit card has a 12-month interest-free period on purchases, American Express’ Platinum Cashback card is paying 5% cashback for the first three months – ideal if you pay your credit card off in full each month. For more on these, and other leading credit card deals, read Clare Francis’ article ‘What’s the best credit card?’.
Some banks even reserve mortgage deals for existing customers, such as Alliance & Leicester’s (A&L) two-year fix priced at 4.19% from its premier mortgage range which is available for loans up to 75% of a property’s value.
However, heading straight for the biggest financial commitment of your life just because you are already with the bank or building society is not a good idea.
First Direct, for example, is also offering a two-year fixed rate payable at just 3.34% providing you can lay your hands on a 40% deposit.
Do factor into your decision any general discounts offered by your current bank. HSBC for example gives its customers a 0.15% discount across all standard rates on its mortgage deals.
Linked accounts are also being used to attract new customers – while many preferential loan-based products are restricted to existing customers, savings accounts are often used to attract new sign-ups.
Abbey and A&L, which are owned by Santander, are both offering regular savings accounts paying 6.0%. However, in order to qualify you must switch your current account to the bank. The offer is available to those who sign up for A&L’s Premier Direct or Premier 50 accounts, while Abbey’s Super Fixed Rate Monthly Saver is linked to its Preferred In-credit and Reward accounts. These current accounts also pay a rate of 6.0% - this is fixed for 12 months and is payable on balances up to £2,500.
HSBC is offering a regular savings account paying 8.0% - this deal is available to new and existing current account customers.
A word of warning
In fact, with any kind of linked products, while it may be the best offered by that particular provider, there is no guarantee that it will be the best on the whole market. This is why you should be wary of being lulled into a false sense of ‘best buy’ security by your current financial providers - always see what else is available and ensure you’re getting the best deal.
Linked products may well prove to be the best deal – and they may also provide some administrational relief as all your financial affairs can be conducted under the same umbrella. However, while you can be sure that your bank’s offer will always suit them, it may not always suit you. In short, no linked product should ever negate the need to shop around for the best deal.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing. Products underlined can be applied for directly.