Posts Tagged ‘current accounts paying interest’

5 percent fixed for 12 months – our best selling current account…

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Last updated: 25/10/2016

With more and more high interest current account providers announcing reductions to their interest rates, the 5% fixed for 12 months from Nationwide now looks even better than before. Here we take a more detailed look at the pressures savers are facing in these difficult economic conditions, as well as help reveal why the FlexDirect continues to be our best selling current account.

Nationwide FlexDirect account summary

  • 5.0% AER (4.89% gross p.a.) fixed for 12 months
  • Paid on balances up to £2,500, no interest paid above this amount
  • 1.0% AER variable on balances up to £2,500 after 12 months
  • You must pay in £1,000 per month to qualify
  • No requirement to set up direct debits
  • Contactless Visa debit card available
  • 12 month fee-free arranged overdraft available
  • Free text alerts to help you manage your account
  • No monthly account fee
  • Covered by the Current Account Switch Guarantee and Financial Services Compensation Scheme

Savings rates in dire straits

Our market leading instant access account (RCI Bank Freedom Savings Account) is currently paying 1.0% AER variable, whilst our best long term fixed rate (Vanquis 5 Year Fixed Rate Bond) will get you 1.95% AER – that’s an increase of less than 1% per year for tying up your money for five years, albeit the rate from Vanquis is fixed for the full term. Then of course there are a load of accounts offering rates in between these, mainly fixed rate bonds of different durations. It may be repeated far too often, but unfortunately it makes it no less true – savings rates are at record lows – and it would seem this at the very least, this is set to continue, and possibly get even worse.

Inflation into the mix

If record low savings rates weren’t enough to worry about, the Consumer Price Index rose from 0.6% to 1.0% in September, the biggest monthly rise in more than 2 years and its highest level for 22 months. Since this rise, less than half of all savings accounts are able to match or beat this level, which means many savers are seeing the value of their cash eroded in real terms. According to the Bank of England, the average easy access account now pays under 0.3%, and with further cuts to savings rates on the cards, inflationary rises are a serious cause for concern.

High interest current accounts

Although historically, current accounts offered little if anything in the form of interest on your account balance this has changed significantly in the last few years, and against this harsh economic backdrop for savers, it is hardly surprising that the high headline rates of interest on offer have made compelling reading. Indeed, high interest current accounts have been one of the most popular safe havens for those looking to combine all of the usual account features you would expect from a full banking service with a highly competitive rate.

5% fixed for 12 months

Top of the rate table is Nationwide’s FlexDirect account which offers 5.0% AER (4.89% gross p.a.) fixed for the first 12 months. This rate is paid on all in-credit balances up to £2,500 and you must pay in a minimum of £1,000 per month to qualify (this excludes internal transfers). After 12 months the rate reverts to 1.0% AER variable. There is no monthly account fee, and with top rates on instant access and fixed term deposits ranging between 1.0% and 1.95%, it is easy to see why this account has attracted so much attention.

Others falling short

TSB Bank also offers 5.0% AER but this is variable and is only paid on balances up to £2,000, rather than the £2,500 on offer from Nationwide. The rate is, however, paid ongoing rather than for a fixed period of 12 months. But TSB has recently announced that with effect from 4th January 2017, the rate will reduce to 3.0% AER variable and will only be paid on balances up to £1,500. This follows in the footsteps of Santander who announced back in August that the 3% top tier interest rate on its flagship 1|2|3 Account would be halved to 1.50%, taking effect from 1st November this year. Lloyds has also announced that the rate on their Club Lloyds current account will halve from 4% to 2% in January 2017.

So whilst Nationwide’s main competitors are reducing their rates, this makes the FlexDirect offering even more competitive, especially since the rate is fixed for the first 12 months. Currently we are not aware that Nationwide has any plans to reduce its rate, although they state their rates are constantly under review.

Fair Investment view

Commenting on the account, Oliver Roylance-Smith, head of savings and investments at Fair Investment Company said; “The FlexDirect from Nationwide offers a market leading interest rate on balances up to £2,500, although the £1,000 you are required to pay in each month is at the higher end compared to other current accounts offering competitive interest rates. There is also no monthly account fee, so all of the interest earned goes straight into your pocket. Although the rate drops to 1% variable after the first 12 months, this is still considerably more than most other current accounts and on a par with some of the top instant access accounts currently on offer. With the Current Account Switch Guarantee running alongside, there really is no excuse to finding out more.

Santander still the top choice on larger balances

With effect from 1st November, Santander’s 1|2|3 account offers 1.50% AER variable on all balances up to £20,000. If you were to compare this with the best instant access accounts on offer, it would be a clear market leader, albeit with the cap on the amount you can earn interest on. You can also earn up to 3% cashback on selected household bills such as council tax, gas and electricity, broadband, mobile phones and more. You must pay in at least £500 per month and have at least two active direct debits to receive interest and cashback. There is also a £5 monthly account fee, which may be cancelled out if you make the most of the cashback on offer – their site has a simple calculator to help you work out how much cashback and interest you might earn, versus this monthly cost.

A note on the Personal Savings allowance

Remember that since the start of the current tax year (6th April 2016), most people receive a personal tax free allowance for interest earnings on savings. For basic rate taxpayers this is set at £1,000 each tax year, whilst higher rate taxpayers get an allowance of £500. Beyond these allowances, basic rate taxpayers will pay 20 percent on savings income and higher rate taxpayers pay 40 percent. Additional rate tax payers will not receive a personal allowance. Also note that income from ISAs does not count towards your Personal Savings Allowance (it’s already tax-free).

An important part to play for savers?

Even with the Personal Savings Allowance, there is no doubt that every penny counts in these days of record low rates, creeping inflation and economic pressures all round, and so the returns on offer from the best high interest current accounts cannot be ignored. 5% on £2,500 equates to £125. Our market leading instant access currently offers 1.0% and so you would need £12,500 in that account to achieve the same level of return. Although these are first and foremost current accounts, they also have every right to be considered amongst the range of options for savers.

7-Day Switch

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 Nationwide and Santander), 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.

To switch or not to switch?

The 7-Day Switch rules therefore offer peace of mind to anyone considering a switch from their current account provider. However, you don’t necessarily have to switch your current account – although Santander requires you to have at least two active direct debits, Nationwide does not and so if maximising interest is your top priority, you could also consider taking one of these accounts out in addition to your existing current account, thereby leaving everything you already have in place. You will of course have to make sure you pay in the minimum amount required each month in order to earn the level of interest on offer.

Could you get more from your current account?

Many existing accounts pay no interest at all, so with up to 5.0% 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). As a minimum, these accounts should be considered an important contributor to the overall returns from your savings.

 

Click here for more information on Nationwide’s FlexDirect account »

Click here for more information on TSB’s Current Plus account »

Click here for more information on Santander’s 1|2|3 account »

Click here to compare high interest current accounts »

 

Please note that all rates and charges quoted are subject to change.

Overdrafts are only open to customers aged 18 or over and are subject to approval.

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.

Current account focus: our Top 3 high interest current accounts

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Last updated: 27/09/2016

Although we use our current account more than any other, it is often the one that we review the least in terms of comparing it with the latest the market has to offer. But with interest rates as high as 5.0% on offer, various types of cashback and other financial incentives, along with a 7-Day Switch service that offers peace of mind to those that do switch, the market for current accounts is the best its ever been. So here we take a look at the three accounts which are proving most popular with those either making the switch, or choosing to take out a second account.

High interest

Historically, current accounts have been renown for offering paltry rates of interest, and it is only fairly recently that this has significantly started to change. What this now means is that, provided you are usually in credit with your account, you can now be rewarded with very healthy rates of interest indeed. Not only do all of the accounts featured offer full banking services and have VISA debit cards available, but because of the interest rates on offer the amount that can be achieved when compared with leading instant access and short term fixed rate bonds, can be compelling in its own right.

Current account versus savings account

Therefore, although these should be technically described first and foremost as current accounts, they also have every right to be considered amongst the range of options for savers, especially since they are predominantly offered by the main high street banks and building societies and so eligible deposits are covered by the Financial Services Compensation Scheme.

Could you get more from your current account?

Many existing accounts pay no interest at all, so with up to 5.0% 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).

Our top three selections

Each account has its own features and criteria, and most usually require a minimum amount to be paid in each month to qualify for the headline interest rate, with different rates being paid for different levels of account balance. Here we take a look at our three most popular high interest current accounts.

5.0% on balances up to £2,500 for 12 months

Nationwide’s FlexDirect is our most popular current account, mainly due to the level of interest it pays on all in-credit balances up to £2,500. The interest rate is 5.0% AER (4.89% gross p.a.) which is fixed for the first 12 months of the account being opened. To receive this rate, you must pay in a minimum of £1,000 per month (excluding internal transfers). There is no monthly account fee, a fee-free overdraft is included for the first 12 months and you can manage your account online or via automated telephone banking. After 12 months the rate reverts to 1.0% AER variable.

Fair Investment view: “The FlexDirect from Nationwide offers a market leading interest rate on balances up to £2,500 although the £1,000 you are required to pay in each month is at the higher end. There is also no monthly account fee, so all of the interest earned goes straight into your pocket. Although the rate drops to 1% variable after the first 12 months, this is still considerably more than most current accounts and not that far off some of the top easy access accounts currently on offer.”

5.0% variable on balances up to £2,000

TSB’s Classic Plus account also offers 5.0% AER (variable) interest, payable on balances up to £2,000. No interest is paid on balances above this amount and although the 5.0% 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 on your first £100 of contactless or Apple Pay payments each month (this offer ends December 2016 and terms and conditions apply).

Fair Investment view: “The 5.0% headline rate matches that from Nationwide’s account although it is a variable rate (rather than fixed) and is paid on a slightly lower account balance of £2,000 – however, the amount you are required to pay in each month is at the lower end of the high interest current accounts available. As with Nationwide’s account, there is no monthly account fee and the fact that the variable interest rate continues without a time limit could make this an attractive option for those looking beyond 12 months.”

Up to 3.0% interest and 3% cashback

The Santander 1|2|3 account combines a competitive rate of interest with the opportunity to receive cashback on a number of your main household bills. You will receive 3.0% AER variable once your balance is at least £3,000, payable on your entire balance up to a maximum of £20,000, with lower rates of interest paid on balances of less than £3,000. Please note that interest paid on the account will change to 1.50% AER on all balances up to £20,000 from 1st November 2016. You can also earn up to 3% cashback on selected household bills such as council tax, gas and electricity, broadband, mobile phones and more. 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.

Fair Investment view: “Because of the way the interest is calculated, this account is likely to appeal to those with higher in credit balances, particular those who regularly have over £3,000 available. For example, if you had £4,167 in your Santander 1|2|3 account, you would earn the same interest as you would be paid on 5.0% AER on a balance of £2,500, whilst this account continues to pay interest on higher credit balances up to £20,000. So if you’ve got savings of £3,000 or more, this account could offer a compelling overall rate of interest, as well as cashback on your monthly bills.”

7-Day Switch

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 Nationwide, Santander and TSB), 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.

To switch or not to switch?

The 7-Day Switch rules 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 – Santander is the only provider in our top three which requires you to have any active direct debits (at least two), and so if maximising interest is your top priority, you could also consider taking one of these accounts out in addition to your existing current account, thereby leaving everything you already have in place. You will of course have to make sure you pay in the minimum amount required each month in order to earn the level of interest on offer.

Always compare

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 hundreds of thousands of people 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…

 

Click here for more information on Nationwide’s FlexDirect account »

Click here for more information on TSB’s Current Plus account »

Click here for more information on Santander’s 1|2|3 account »

Click here to compare high interest current accounts »

 

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.

 

Time for savers to face the truth

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For those who are not prepared to risk their capital to try and achieve higher returns, the ability to rely on traditional savings products has never been more challenging. Savers keen to maximise the level of FSCS protection with their capital have only really had a couple of options historically. Either accept a variable rate but have instant access to your savings, or alternatively sacrifice access and receive a higher interest rate depending on how long you are able to tie up your money.

But as savers continue to face significant falls in the level of income available, more and more of us are having to face the truth about just how serious the situation is. So what are you doing with your savings and have you questioned your decisions in the past? Here we take a look at the harsh reality being faced by savers whilst looking at the pros and cons of the options being considered. Our Head of Savings and Investments, Oliver Roylance-Smith, will also offer his own view in the context of the current savings rates on offer and the outlook for the market in the coming years.

‘Tis the season to be jolly…

Unfortunately the start of advent has not brought with it any gifts for savers. Although the plight of savings rates often takes a back seat to the more economically charged debate around when we might see a rise in interest rates, the ongoing situation for savers is a fairly easy one to square off.

The current Bank of England base rate of 0.5% is the lowest it has ever been, and with the Monetary Policy Committee (MPC) voting again this month to keep it on hold, we are now in the 68th consecutive month of this record low – that’s’ over 5 and half years…  So if you’ve ever made a decision on your savings based on the hope that interest rates might go up within the next 12 months, you now have a constant reminder of how painful this can be.
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Nationwide offers 5% interest on current account balances up to £2,500

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Many people rely on instant access savings accounts for their emergency funds – as a safe place to keep easily-accessible cash for a rainy day. However, with this year’s crop of easy access savings accounts currently hovering around the 1.5% mark, the returns on this kind of savings option could look less than tempting. Therefore, it may come as a surprise to find that you could get 5% interest from a current account.

Nationwide’s FlexDirect account offers 5% interest on in-credit balances up to £2,500 for the first year, which works out at 4.89% gross pa. This is significantly better than current easy access savings rates and also beats several fixed rate accounts, with the added bonus of being able to access your money whenever you need to.
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