4

Many UK banks require minimal monthly "pay in" (often 500-1500 GBP) to get interest rate payed on their current accounts. Sometimes there is a restriction that payment must come from another bank (payments from other accounts in the same bank do no count). At the same time, as far as I know, there are no restriction for having several current accounts in different banks.

So it becomes quite easy to formally arrange the required "pay in" with having simple standing orders transferring money between one's accounts in different banks (like A->B; B->A). Of course this trick requires having at least 500-1500 GBP on those accounts.

The question is: why do banks still require that "pay in" if it can be easily implemented without actually paying additional money into the system? What is their reason? Where is the catch here?

Thanks.

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Banks are not your friends, they are not performing services for you because they like you. They are a business, and they make money by borrowing money from you at low interest and loaning it out at higher interest. They are trying to persuade you to deposit more money (however briefly) in their bank so they can loan out more money. They are probably also counting on the fact that most folks won't go to the trouble of setting up accounts at multiple banks with the interlocking automatic transfers, in order to meet the required deposit threshold. That lets them save on the interest payments to consumers that are individually tiny, but significant in the aggregate.

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From the banks point of view the point of a current account like this is to get you as a regular customer. They want to be your "main bank", the bank you interact with the most, the bank you turn to first when you need financial products and services, the bank whose advertising you see every time you log into online banking or walk into a branch.

The bank knows that if they just offer the unprofitablly high interest rate or other perks with no strings attatched that people will open the account and dump a bunch of savings in it but won't actually move their financial life over, their old bank will still be their main bank.

So they attatch strings like a required minimum deposit, a minimum number of direct debits and similar. These have minimal effect on people actually using the account as their main current account while being a pain for people trying to game the system.

Of course as you point out it is still possible to game the system but they don't need to make gaming the system impossible, they just need to make it inconvianiant enough that most people won't bother.

  • This is similar to why US banks and credit unions which offer high interest rates require a minimum number of debit card transactions and dollar amount spent per month. – RonJohn Oct 23 '17 at 20:36
  • +1 "inconvenient enough that most people won't bother" is the key phrase. – TripeHound Oct 24 '17 at 8:37

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