Survival guide to current account interest

The dramatic demise of the top interest-earning current account this week may feel like the final nail in the cash coffin. Actually, it’s just time to think a little laterally

Rates on interest-earning products are being culled by current and savings account providers

It was only a matter of time before Santander slashed the generous interest rate on its 123 current account – one of the country’s most popular accounts. From November, up to 500,000 customers will find their 3 per cent interest rate halved to just 1.5 per cent.

It’s not a unique move. With the Bank of England base rate at a historic low (and whispers of further falls) and an uncertain economic outlook, rates on interest-earning products are being culled by current and savings account providers across the board.

But for those whose current account trickles with a little cash at the end of the month, this doesn’t spell the end of the road for inflation-beating returns on everyday cash.

For starters, 123 account holders don’t need to do anything rash just yet. In fact, those with up to £500 in their account may find themselves with up to £7.50 more a month, albeit with a recently increased fee of £5 to contend with.

But there are still other valuable options out there, not least TSB’s Plus account, offering 5 per cent interest on balances of up to £2,000 and 5 per cent cashback on the first £100 worth of contactless or Apple Pay transactions every month.

Indeed, if you regularly make big value transactions through your current account, one way to beat the interest rate cuts could be to earn it from cashback instead. Natwest, for example, offers 3 per cent cashback on household bills such as council tax and utilities, though there is a £3 monthly fee to bear in mind. And Santander’s 123 account is maintaining its existing cashback deal worth up to 3 per cent on certain purchases.

There are also the free money options from accounts offering a one-off switching incentive. New customers switching to Co-op Bank’s current account get a £150 reward for doing so while First Direct’s 1st account offers £100 cashback for switching, as well as £250 of free overdraft facilities.

One thing is for sure, it’s time to think a little laterally about making your current account work harder for your money.