The 5% savings rate trick: Best high interest-paying current accounts to make your money work harder

Savings rates are at an all-time low, providing a good incentive for checking out alternative ways to make your money work harder.

Unfortunately in recent months Santander, TSB, Lloyds Bank and Halifax all announced cuts to their popular interest-paying current accounts largely blamed on the Base Rate cut to 0.25 per cent.

However there are still some lucrative accounts offering savvy consumers an alternative to miserly rates on savings accounts.

We have scoured the small print to round-up the best interest-paying accounts. This page is kept up-to-date throughout the year – bookmark it for the very latest developments.

Free money: We pick the best of the interest-paying current accounts

TOP ACCOUNTS FOR INTEREST

Account Perks Conditions Santander 123
From Santander pays 1.5 per cent on balances up to £20,000 plus up to 3 per cent cashback on bills (It currently pays up to 3 per cent)
£5 a month pay in £500 a month and two active direct debits
Nationwide FlexDirect
5 per cent interest on up to £2,500 and fee-free overdraft, both for the first year only Pay in £1,000 a month

Tesco Bank Current Account
3 per cent on balances up to £3,000 (fixed until 2019) and extra Clubcard points for spending on debit card No fee or rules (Applications for new accounts temporarily frozen)

TSB Classic Plus
3 per cent on up to £1,500 plus 5 per cent cashback on first £100 of contactless spending each month with debit card or Apple Pay
The account currently pays 5 per cent interest on £2,000 but the rate drops in the New Year. Pay in £500 a month.
Club Lloyds

2 per cent on up to £5,000 (currently pays 1-4 per cent tiered interest) Plus choice of one lifestyle benefit such as 6 cinema tickets or magazine subscription £3 monthly fee or deposit £1,500 a month

Nationwide is offering the highest available interest rate on a current account, but there is a catch, you can only collect for a year.

Best interest rate

Nationwide’s FlexDirect accountpays out 5 per cent in-credit interest on balances up to £2,500 for the first year – not bad considering most easy-access savings rates have slid in recent years.

Account holders are also eligible for a 0 per cent overdraft for the first 12 months, and reduced fees of 50p per day for arranged overdrafts after that.

You must pay in a minimum monthly income of £1,000. On the last day of every month Nationwide will calculate the interest you’ve earned each day and then pay you this interest on the first day of the next month.

Nationwide normally pays this interest ‘net’ of any tax, which means it deducts any tax due and passes it to the government for you.

Plus, if you’re accepted, you’ll be eligible for the Nationwide Select credit card. It gives 0.5 per cent cashback, cheap overseas spending and other perks.

Watch out

If your income drops and you can’t pay in £1,000, you won’t receive any interest that month.

The 5 per cent interest deal ends after a year, when it drops to just 1 per cent. So it may be worth looking elsewhere after the 12 months for a better return on your money.

You get an interest-free arranged overdraft for that 12 months, but after that a flat rate charge of 50p per day applies, this will be costly for those who regularly go overdrawn compared to a typical interest-charging overdraft.

Unarranged overdrafts cost 50p per day for balances under £10 and £5 per day after that, capped at £60 per month.

If you like to carry out your banking face-to-face, this account might not be good for you because you can only access internet or telephone services as a FlexDirect customer.

This is Money verdict

Accounts that are good for both in-credit and overdrawn customers are few and far between. This account is a market-leading option for the first 12 months, but you may want to switch to another account once the introductory offers have gone.

Does your bank work for you? Lloyds Bank pays 2 per cent on your first £5,000

Bank of Scotland’s Vantage feature pays 3 per cent on balances up to £5,000.

It can be added to any of its Classic, Silver, Platinum, Gold or Premier Accounts for free.

You get 1.5 per cent on balances up to £999.99, 2 per cent on when you have between 1,000 and £1,999.99 in the account and 3 per cent for amounts between £2,999.99 to £5,000, earning up to £150-a-year.

Small print

To qualify you must maintain monthly deposits of £1,000, stay in credit and pay in at least two direct debits.

The Classic Account comes with a £25 free overdraft, plus you get a £10 buffer. After that you pay a £6 monthly usage fee plus interest at 19.89 per cent.

Unplanned borrowing comes with hefty fees on top of this, you pay a £5-a-day fee for unplanned amounts over the free £10 buffer but below £25, anything beyond this costs £10-a-day.

Lloyds Bank currently pays 2 per cent across a £5,000 balance.

Savvy customers can use a clever trick to boost their earnings as the Club Lloyds account offers accountholders both a single and joint account.

Plus you can open the bank’s attached regular saver which earns 4 per cent.

Extra earning potential

Unfortunately this year the bank halved the rate you can earn from up to 4 per cent on a balance of £5,000 however this still outstrips most savings accounts paying £101-a-year.

The bank has also announced a cut to the monthly account fee from £5 to £3. However those who pay in £1,500 each month don’t pay the fee.

Account holders also have access to a monthly saver account paying 4 per cent, with a £400 monthly paying-in allowance, pay in the maximum to this and you could get £103 a year in interest.

You can choose between a free annual magazine subscription, a Gourmet Society discount-dining card or six cinema tickets a year.

The account also offers a 0.2 per cent rate cut on Lloyds Bank mortgages and comes comes with a £100 fee-free planned overdraft.

One drawback is that the bank charges a £3 monthly fee unless £1,500 is deposited into the account each month. On top of this you must set up two direct debits.

Any planned borrowing beyond the first £100 and unplanned overdrafts costs £6 a month. Straying beyond the agreed limit will incur 19.94 (EAR) per cent.

The bank does however offer a grace period for you to correct any mistakes. It gives until 3:30pm the next day before it applies any charges.

Cashback: TSB also pays 5% back on contactless spends

TSB just dropped the rate on its Plus Account from 5 per cent on up to £2,000 to 3 per cent on £1,5000.

It has always been the best alternative for those unable to deposit the £1,500 required by Lloyds Bank (the TSB monthly minimum deposit is just £500) or for those with a smaller balance.

On top of the 3 per cent interest paid on balances of up to £1,500 TSB offers a cashback boost paying five per cent cashback on up to £100 of contactless spends each month worth up to £60 each year.

The account also has the major bonus of only needing a £500 monthly deposit, £1,000 less than the Lloyds Club account.

New customers are limited to one single and one joint account.

Small print

There are some hefty penalties for going overdrawn: Authorised and unauthorised overdrafts are subject to a monthly £6 fee while interest is charged at 19.94 per cent.

There is a free overdraft buffer, if you do stray into negative credit by accident, but this only protects customers from charges if they go overdrawn by £10.

It is possible to apply for a £25 interest and fee-free overdraft excluding the standard £10 buffer, this would allow you to go overdrawn by a slightly more generous £35 before being hit by interest or fees.

Unplanned borrowing comes with additional daily fees on top of the £6 monthly fee. It costs £5-a-day for amounts above the £10 buffer but below £25, anything above £25 incurs a £10-a-day charge.

Use your debit card abroad and you will pay a 2.99 per cent non-sterling transaction fee, withdrawing cash abroad will cost you an extra 1.5 per cent (minimum £2, maximum £4.50).

Santander 123: Account holders will see their earnings halved from November 1 2016

The Santander 123 Account pays customers up to 1.5 per cent interest on balances up to £20,000.

Unfortunately changes to the account in Novemeber 2016 halved the interest rate from up to 3 per cent to 1.5 per cent while an earlier announcement also bumped annual fees to £60-a-year have made it much less rewarding.

That said, paltry savings rates could still make this account one of the best options for anyone with a large balance.

What you get

The account still offers double benefits. On top of the flat rate 1.5 per cent interest, Santander also offers monthly cashback on key services such as mortgage payments, council tax bills, electricity, gas, mobile and home phone, broadband and TV packages.

Check first that your supplier is eligible – not all are included in the scheme, particularly smaller energy firms. All bills must also be paid by direct debit.

You get 1 per cent on your Santander mortgage (up to maximum monthly mortgage payments of £1,000), and on any spend on water and council tax bills that come out of the account.

Electricity and gas bills generate 2 per cent, with 3 per cent from spending on mobile, home phone, broadband and paid-for TV packages.

Household bills exclude your TV licence, maintenance/insurance contracts, commercial use or commercial mortgages.

Both interest and cashback you earn is paid directly back into your 123 account on a monthly basis.

small print

There is a monthly fee of £5 and to be eligible for cashback services you must set up a minimum of two direct debits and pay in at least £500 every month. But to get the most benefit from this account, it’s best to retain a credit balance of at least £1,000.

Arranged overdrafts are charged at £1 a day. Unarranged overdrafts shoot up to £6 a day with no cap on unauthorised borrowing.

Clubcard points: Tesco Bank pays current account holders a boosted rate on their shop

Tesco Bank has paused applications to its current account thanks to unprecedented demand. The account is expected to reopen soon.

Tesco Bank offers 3 per cent interest on balances of up to £3,000 (worth £88 a year) and added opportunities for Tesco shoppers to earn Clubcard points.

Tesco Bank also recently announced that it will guarantee the rate until March 2019. This goes against the grain at a time when most banks are hacking at account interest and perks.

Plus it will also reward shoppers with extra Clubcard points when using their debit card in stores (see below).

The banking arm of the supermarket giant has made it fairly easy for customers to sign up with few restrictions.

New customers are not required to swap over any direct debits to the account. Customers can open both a personal and joint account – for a couple this means 3 per cent interest on up to £9,000.

Clubcard points

Tesco debit cards double up as Clubcards, earning both standard loyalty points and an extra boosted rate.

Those with the supermarket loyalty card currently earn 1 point per £1 spent in stores, with current account holders earning an extra 1 point per £4 spent in stores and 1 point per £8 elsewhere.

From April account holders will earn 1 point per £1 spent in stores on top of the standard loyalty scheme, meaning a total earning 2 points per £1 spent in stores.

A £1,000 per month including £250 spent in Tesco could be worth up to £70 off your shopping.

It offers a fairly simple overdraft deal, but it could end up being costly for those who stray into an unauthorised overdraft

Tesco Bank charges £5 for each payment made or rejected when accountholders are in an unauthorised overdraft.

Agreed borrowing incurs interest of 18.9 per cent AER.

That said the current account does come with an extra control feature that allows people to elect whether to use their agreed and unagreed overdraft or not.

It also has a handy feature that sends a text message or email to notify them if they have strayed beyond their limit, meaning if customers repay the amount by 5pm they won’t be charged.

TOP ACCOUNTS FOR FREE PERKS

Account Perks Conditions First Direct 1st Account
£125 for joining via switch service and £250 interest-free overdraft
Pay in £1,000 a month

Halifax Reward £100 for joining via switch service and £5 monthly bonus (this will drop to £3 from January). Pay in £750 a month, stay in credit and two active direct debits M&S Bank Current Account £50 gift card for joining via switch service, plus collect an extra £5 a month for the first 2 years in vouchers. Loyalty points for spending on debit card in store and £100 interest-free overdraft No fee or rules
Co-operative Bank
£110 cash to switch. Opt into Everyday Rewards to receive cashback of £4 per month and 5p per debit card transaction (max £1.50) Co-operative Bank recently put itself up for sale. While its products remain unchanged, if you are considering taking out an account you may want to read our coverage of the sale first. Pay in £800 a month, no unplanned borrowing, check online or mobile banking, pay out 4 direct debits and opt in to paperless statementsHSBC Advance £150 cash to switch and £50 extra after first 12 months Current Account Switch Service and move over two or more direct debits or standing orders to their new account within the first 30 days. Requires £1,750 minimum monthly deposit

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