Can interest rate hopping affect your credit score?

Imagine you have a savings balance of £75,000. If you leave it in your current account, interest rates are often lower than they would be with a savings account, or you may not earn any interest at all. For example, a low interest rate of 1.50% AER would earn you £1,125 in interest over a 12-month period. 

If you actively "hop" between accounts to chase better rates throughout the year, your interest can build. Here’s an example of what a rate hopping strategy might look like over a 12-month period using easy access accounts:

Note interest rates are not based on specific products and are used for illustrative purposes only. 

If you had left your initial £75,000.00 deposit in Bank A at 4.00% AER for the entire 12-month period, you would earn a total of £3,000 in interest. By moving your money to capture the rate increases throughout the year, your total interest earned would be £3,500 (but it’s important to note this return may be subject to tax).

By actively moving your funds to accounts offering better rates as in this example, you would earn an additional £500 over the course of the year, and an additional £2,375 compared to leaving them in a current account. Note that this calculation is for gross returns. In the UK, the Personal Savings Allowance (PSA) allows basic-rate taxpayers to earn up to £1,000 in interest tax-free each tax year (£500 for higher-rate taxpayers; £0 for additional-rate taxpayers). Earning £3,500 in interest exceeds these allowances, meaning income tax would be due at your income tax band on interest above your PSA threshold unless savings are held in an ISA. Inflation can also reduce the purchasing power of your funds over time.

Your individual file is maintained by credit reference agencies (CRAs) such as Experian, Equifax and TransUnion to give you your unique credit score. They collate information including: 

• Credit card and loan applications
• Mortgages in your name
• Utility bills for your address
• Electoral roll status
• Bankruptcies and insolvencies

Every time you apply for a financial product, a check is performed which leaves a footprint on your credit file. Too many of these searches could indicate financial stress, signalling to lenders that issuing credit to you may be higher risk. 

However, there is an important distinction between hard and soft searches, so you should make sure you understand the two types. 

A hard search is a full check of your credit report, performed by a lender. It’s usually only used when you are applying for credit. 

A soft search is an information gathering exercise. It’s not as thorough as a hard check and crucially, it doesn’t affect your credit score. It may be performed when:

• You use services to check your own credit score
• You check your eligibility for certain products or offers, perhaps via online comparison sites
• Companies check if you are pre-approved for certain products
• Landlords, utility companies or employers run identity and background checks

These are the key differences between hard vs soft searches:

1. Be aware of the type of credit check. Standard savings accounts only trigger a soft search, so if you’re opening one of these, the check is only visible to you and won’t impact on your credit score.
2. Limit the number of current accounts you open. High street banks will often retain their most preferential savings rates for current account customers. But opening a new current account will trigger a hard search, so doing this regularly can impact your credit score.
3. Keep track of your credit score. Monitor your report regularly to ensure it accurately reflects your activity, particularly after opening new accounts. Mistakes could impact your credit score so report them immediately. 

You don’t need to switch banks or manage multiple logins to chase higher yields. With a Raisin UK account, you gain access to a marketplace of partner banks via just one platform. There’s no current account required, and no impact on your credit report, so you can open new savings accounts as often as you like.