Savings rates may be low, but you can still earn up to 6% on your cash, without even opening a savings account.
When it comes to fantastic financial products, current accounts usually play second fiddle to more enticing moneysavers such as credit cards and savings accounts, which tend to hog the financial limelight.
But when it comes to savings at least, there hasn't been much to shout about recently. Though the savings market has finally picked up, rates are still nowhere near as good as they were last year, and many of us are holding out for a better interest rate.
But if you play it smart, you could earn up to 6% on your cash, without needing to open a savings account.
How? By leaving your money in a high interest current account...
Excuses, excuses
The truth is, many of us are reluctant to ditch our current accounts for pastures new, even if we've had a bad experience with our existing provider.
According to Santander, over half of Brits (52%) are still with the same bank they were with a decade ago. Until a few years ago, I was the same, and I'd stuck with the same bank that gave me a free Game Boy when I was a kid (when you're little, your priorities are a little different).
There are a range of excuses why people don't want to switch, with one in five (21%) claiming they don't have the time, and nearly a third (29%) saying that there isn't any point because they wouldn't gain anything.
But just last month, HSBC followed the lead of its online spin-off First Direct, and removed the interest on its Bank Account Plus (previously 2% AER). This follows its gradual phasing out of in-credit interest on all its current accounts over the past year.
So with banks slowly withdrawing benefits, while simultaneously increasing overdraft rates, now couldn't be a better time to switch.
Here's a selection of some of the better current accounts, and what they offer:
|
Provider and Account |
In credit interest rate (AER) |
Overdraft rate (EAR) |
Incentive |
Minimum requirements |
|
6% |
0% overdraft for 12 months. Usage fee of 50p applies after this time |
6% fixed interest rate on balances up to £2,500 for one year |
£500 monthly credit required |
|
|
Abbey current account (preferred in-credit option) |
6% |
0% Advance overdraft for the first four months if you switch using Abbey's account transfer service, 19.9% EAR thereafter |
6% fixed interest rate on balances up to £2,500 for one year |
£1,000 monthly credit required |
|
Halifax Reward Account |
0% |
0% |
£5 a month credit |
£1,000 monthly credit required |
|
First Direct 1st Account |
0% |
15.9% |
£100 cashback |
£1,500 monthly payment required |
Banking giant Santander recently raised the interest rate on both its Abbey Bank Account (in-credit option) and Alliance and Leicester Premier Direct account to 6% AER for the first 12 months (though you can't take advantage of the offer if you already bank with Alliance & Leicester, Abbey or internet bank Cahoot).
If you kept an average balance of £1,000 a month, you'd earn £48 in interest as a basic rate taxpayer over the year. This compares to absolutely nothing with HSBC, and a derisory 80p (yes, 80p) with the standard accounts from big names like NatWest and Lloyds TSB.
Contrary to popular belief, Santander also says that switching couldn't be simpler. They will move all your direct debits and standing orders for you, and even write to your employer to tell them of the change.
The financial reasons for switching are just as compelling. The current market leader in terms of savings is the Birmingham Midshires Telephone Extra Account, which pays just 3.15% AER.
However, if you put £1,000 in this account, you'd earn £25.20 in interest as a basic rate taxpayer, compared to £48 in the Alliance & Leicester or Abbey account.
And, if you put the maximum of £2,500 into the account for a year, you'd earn £120 in either current account, yet only £63 if you stashed it in the Birmingham Midshires account.
The sky's not the limit
As you may have noted, you only earn 6% on balances up to £2,500 (anything above this and you'll earn just 0.1% AER).
If your current account balance tends to be higher than this, you may want to consider switching to Lloyds TSB's Current account with Vantage, which pays a juicy rate of 4% if you keep a balance of £5,000 to £7,000 in your current account.
This means an average balance of £5,000 would earn you £160 in interest as a basic rate taxpayer, compared to £122 with the Abbey or Alliance and Leicester account.
You won't have to pay anything extra for Vantage, and the account is available to both new and existing customers. In addition, the rate doesn't expire after 12 months.
Broadening your horizons
If none of these options appeal, there are still other avenues you can explore.
For example, The Halifax Reward current account gives a fiver a month to anyone who pays in at least £1,000 a month into the account.
The account itself doesn't pay any interest, but it also doesn't require a minimum balance. So, if you were really cunning you could pay in your salary to qualify for your fiver, then sweep it into a savings account the next day to earn interest as well!
In addition, First Direct offers £100 if you switch to them. The downside to is you need to pay in at least £1,500 into the account per month (which means you need to earn around £23,500 after any student loan deductions to qualify).
Get creative!
There's no doubt that using your current account as a savings vehicle is an unorthodox way to stash that cash. But with savings rates still lagging behind, it's time to get creative, so you can make the most of your money.... and get more bang for your buck!