Interest rates on UK savings are currently very low, with the best offers usually requiring you to keep savings on deposit for a fixed period. However there are a number of interest bearing current accounts on the market which appear quite attractive for those considering opening a new bank account, or those prepared to switch. There are three current accounts which can pay interest on balances, each requiring the account holder to make a minimum deposit of £1000 per month.
Despite their attractive headline interest rates those considering switching accounts should note that the offers have small print which needs attending to, and may require you to consider switching again in order to chase another best deal. Switching is relatively easy to do though, and it pays to make your money work for you rather than leaving it stagnating in a current account which pays no interest at all, or transferring funds to a savings account which pays less interest.
Without doubt the best current account for interest payments is the Santander Preferred in Credit account. Account holders who switch to this account will receive £100 cash back providing they comply with the terms of a minimum monthly deposit of £1000. In addition the account pays 5% interest on all balances up to £2,500. The catch is that after 12 months the interest is reduced to a miserly 1%. The standard overdraft fee on the account is 19.99%, following an introductory period of 0%.
The Lloyds TSB Classic Plus current account pays 2.5% interest on balances up to £2,500, but the interest rate drops to a dismal 0.1% on balances over £2,500. Account holders can have access to commission free travel money, whilst the standard overdraft rate is 18.9%.
Those with a savings balance of £5000 – £7000 may be more attracted to the Lloyds TSB Silver account with vantage. The account pays 4% interest on this level of balance as long as the account remains in credit and the requisite deposit of £1000 per month is made. The account has the drawback of charging a monthly fee of £7.95 (£95.40 per annum) but does include the benefits of breakdown cover and free travel insurance for the under 65’s. Even with the monthly fee taken into consideration, 4% on a balance of £7000 would earn £280 a year, compared to just £120 in a typical 2% savings account.
Anyone who routinely has their monthly salary or pensions of over £1000 deposited into their current account would be wise to consider switching current accounts to take advantage of the interest payments. The Santander account represents the best deal but it should be remembered that after the first year the interest rate drops from 5% to 1%.