Despite us using our current account more than any other type of account, it is usually the one we review the least in terms of comparing it with the latest market offerings. With interest rates as high as 3.0% on offer, various types of cashback arrangements, as well as other financial incentives, it is quite possible that if you’ve had your current account for some time, there is a better deal on offer.
What’s more, with current account switches offering guarantees to be completed within seven working days with your new bank taking care of everything for you, it is completely different to several years ago when many were put off by the amount of work involved and keeping on top of it all. With this in mind, here we take a look at three current accounts which are proving most popular with those either making the switch, or choosing to take out a second account.
Inflation and savings rates – nowhere to hide
The rate of inflation as measured by the Consumer Price Index, rose to 2.90% in May, its highest level for nearly four years. However, four years ago you could generate this level of interest from a fixed rate bond if you were prepared to tie in for the long term, whereas now the best long term deals are way below this at around 2.40% AER. In addition, according to the Bank of England the average easy access account now pays just 0.15% – that’s a fall of 65% in just one year. This makes the latest inflationary rises a serious cause for concern and means there really is nowhere to hide for savers.
Banks offering incentives
Although historically current accounts have been well known for offering paltry rates of interest, this has changed significantly in the last few years as some of the high street banks started to see the value in offering incentives in order to get new customers. What this means today is that, provided you are usually in credit with your account, you can now be rewarded with very competitive interest rates, healthy levels of cashback on your spending, as well as a range of other benefits.
Could you get more from your current account?
Many existing current accounts pay no interest at all, so with up to 3.0% AER available it is always worth comparing what the market has to offer. Staying put simply because you have all of your direct debits set up is no longer a valid reason, especially since the introduction of the current account switch guarantee (see below for further details).
Three of our most popular current accounts
Each new current account available has its own features and criteria, with different interest rates being paid for different levels of account balance depending on the offering. Most usually require a minimum amount to be paid in each month to qualify for the headline interest rate, as well as the setting up of a minimum number of direct debits. Here we take a look at three of our most popular.
TSB: 3.0% on balances up to £1,500 plus up to £120 cashback per year
TSB’s Classic Plus account offers 3.0% AER (variable) interest, paid monthly on balances up to £1,500. No interest is paid on balances above this amount and although the 3.0% is variable, it is paid ongoing (i.e. is does not drop down after a set period of time). In order to receive this rate you must pay in a minimum of £500 per month, as well as register for internet banking, paperless statements and paperless correspondence. The account also offers £5 cashback every month* just for having two active direct debits per month, with a further £5 cashback every month if you spend with your debit card at least 20 times a month. That’s up to £120 cashback each year, all with no monthly account fee. Find out more »
Santander: 1.50% on balances up to £20,000 plus up to 3% cashback
The Santander 1|2|3 account combines a competitive rate of interest on a large cash balance, with the opportunity to receive cashback on a number of your main household bills. The account pays 1.50% AER variable on your entire balance up to £20,000, whilst you can get up to 3% cashback on selected household bills (e.g. 1% on council tax and water bills, 2% on gas and electricity, and 3% on broadband and mobile phone bills). You must pay in at least £500 per month and have at least two active direct debits to receive interest and cashback. There is a £5 monthly account fee. Find out more »
First Direct: £100 switch incentive plus £250 interest free overdraft
First Direct is offering £100 if you switch your everyday banking to them using the current account switch service (see below) and pay in at least £1,000 within three months of opening the account. You also benefit from a £250 interest-free overdraft, have access to their award winning UK-based customer service team, and can pay in cash and cheques at HSBC and Post Office branches. No interest is paid on balances in credit with this account. There is no cost for the first six months and although there is normally a £10 monthly account fee, there are several was of avoiding this, for example by paying at least £1,000 into your account every month or maintaining an average monthly balance of £1,000. Find out more »
7-Day Switch Guarantee
Apart from the low interest rates generally on offer, one of the main reasons many of us have stayed with our current account provider far longer than other type of account, is the fear that something would go wrong with the direct debits associated with our account. However, since the introduction of the current account switch service in September 2013, the whole process of switching banks is easier and will now be completed in seven working days – the 7-Day Switch.
Over 40 banks have signed up to the service (including TSB, Santander and First Direct), which makes sure that all outgoing payments, such as standing orders and direct debits, will be transferred across to your new bank on your behalf. The service also guarantees that should any incoming payments be sent to your old account in error, these will be automatically redirected to your new account for up to 36 months after your switch date. This means the banks do all the hard work for you, making switching smoother and faster. Over 3 million account switches have been processed since its launch.
To switch or not to switch?
The 7-Day Switch therefore offers peace of mind to anyone considering a switch from their current account provider. However, you don’t necessarily have to switch your current account – if maximising interest is your top priority, you could also consider taking one of these accounts out in addition to your existing current account, provided you still meet any of the account qualifying criteria such as paying in the minimum amount required each month or set up a certain number of direct debits.
Also remember that not only do all of the accounts featured offer full banking services and have VISA debit cards available, they are offered by high street banks and so eligible deposits are covered by the Financial Services Compensation Scheme up to the deposit compensation limit of £85,000 per person, per authorised firm.
Do not let the thought of moving your current account put you off. The competition for current accounts has rocketed in the last couple of years and millions have already made the move to a new account. So as major banks and building societies compete for your custom, always remember to compare the interest rate and any other benefits your current account offers with the best market has to offer – you may be surprised at just how much difference it could make…
* Offer ends 30 June 2018.
AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.
Gross is the interest you will receive before tax is deducted.