Plug into currents and beat savings accounts
It's hard to be a saver, but some great interest rates can be found where you least expect them. By Chiara Cavaglieri and Julian Knight
Saturday 28 September 2013
These are strange financial times. Inflation is above target yet mortgage rates are at near record lows. The economy is sluggish but the stockmarket is going through a bull run. And here, perhaps, is the strangest phenomena of all: you can now get a higher rate of return on your current-account cash than you can with a standard-savings account.
There is major competition in the current-account space with new rules introduced to ensure seven-day switching but next to none in the savings space, so if you're looking to make your money work hard, getting the right account can be highly rewarding.
Not only are there cash incentives and other perks, but several current accounts are offering market-leading interest rates on in-credit balances. In fact, the average no-notice savings account is paying a paltry 0.67 per cent, according to Moneyfacts.co.uk, while the average current-account credit interest is a far more appealing 1.19 per cent.
Anna Bowes, director of Savings-Champion.co.uk says: "Savvy savers will utilise all the weapons in their armoury from cash Isas (individual savings accounts) to high-interest current accounts and regular savings accounts, in order to cream as much extra interest as possible. Saving in the current environment isn't easy and being complacent can cost you dearly, so it's worth juggling your money and considering the best-paying accounts you can find."
Nationwide's FlexDirect current account, for example, pays an impressive 5 per cent on balances up to £2,500 in year one, falling to 1 per cent thereafter. You must pay in at least £1,000 per month to be eligible, and if you can't pay in the required £1,000 you won't receive any interest that month (calculated on the last day of the month and paid the next day, minus any tax). The current best buy for instant-access savings – the Post Office Online Saver – pays a mere 1.50 per cent AER, which doesn't even come close to protecting suffering savers against inflation.
The Lloyds Classic Account with Vantage is one of few accounts to start paying interest on balances as low as £1 – balances up to £1,000 earn 1.5 per cent interest, rising to 2 per cent on £1,000 to £3,000 with the full 3 per cent payable on balances of £3,000 to £5,000. Interest rates apply to the whole balance so if you have £4,000 in your account you earn 3 per cent on the lot.
Again, if you go into the red at all you miss out on interest for that entire month, although there is a £10 overdraft buffer with both this and the Nationwide account.
It isn't very likely that you would be able to maintain a balance of over £5,000 for an entire year, but in theory you could earn £150 in interest per year (before tax) with the Lloyds account. Similarly, the maximum potential pay out with Nationwide (5 per cent on £2,500) would still be a very attractive £125.
Santander's 123 account is another contender. It does carry a monthly fee of £2, but it offers tiered rates starting at 1 per cent on balances from £1,000, 2 per cent on £2,000 to £3,000 and 3 per cent on balances between £3,000 and £20,000. Interest is calculated daily so if your balance falls below £1,000 on any given day of the month you don't earn any interest for that day.
"Nationwide BS gets plaudits for its 5 per cent rate, but remember this is only for the first year. Santander 123 is the winner for balances over £5k as it's the only one paying credit interest at this level," says Andrew Hagger, personal finance analyst at MoneyComms.co.uk.
The 123 account goes one better offering monthly cashback (again ranging from 1 to 3 per cent and paid directly into your account) on your direct-debit bills for mortgage payments, council tax, utilities and TV/broadband packages. You need to set up at least two direct debits and you must pay in at least £500 every month to be eligible, but you can share the account with a partner and put both your salaries in.
The Halifax Reward current account will even give you an impressive £100 switching incentive and an ongoing £5 per month as long as you pay in at least £750 a month and use your account to pay for two direct debits (the £5 reward is only available if you remain in credit).
From the end of September, online Halifax bank customers will also be able to earn up to 15 per cent cashback on spending in various stores including Morrisons, Argos and Homebase under its Cashback Extras scheme.
There are current accounts that give you access to headline-grabbing savings accounts including the First Direct 1st Account. Not only do you get a £125 bonus for switching (you must pay in at least £1,000 per month) and a bank with an outstanding customer-service record, but as a current-account customer you can access their Regular Saver paying an appealing 6 per cent. You are restricted to saving £25 to £300 per month but this can still add up – if you put the maximum £300 per month for the whole year you would earn around £117 (£93 net).
All of these perks are appealing of course, but there is not one bank account that suits everybody. If you regularly rely on an overdraft, in-credit interest rates are of little relevance so concentrate on fees and charges as any rewards will easily be cancelled out if you get stung by overdraft charges.
"These accounts have been tailored for customers who stay in credit and therefore overdrafts charges tend to be higher cost than those specifically designed for those who dip in and out of their overdraft. Customers should also note if they do dip into their overdraft there may be a clause that they could be stripped of their credit interest," says Charlotte Nelson of MoneyFacts.co.uk.
The Microsoft mogul told fans a few home truths during his Reddit AMA
First full-length look is finally here
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Weekly Money: Round-up of the personal finance stories you may have missed 26-30 January
Revealed: Amazon earns more through government grants than it pays in tax
City Watchdog to investigate banks' handling of PPI compensation claims
Pension firms must ask consumers more questions, says City Watchdog
- 1 Woman falls to her death as she celebrates marriage proposal at the edge of Ibiza cliff
- 2 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 3 Ball pool for adults opens in London
- 4 Baldness could soon be treated using stem cells, scientists hope
- 5 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
9 reasons Greece's experiment with the radical left is doomed to failure
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Day In a Page
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion