The bank accounts that beat savings accounts

SavingsIt really isn't a savers' market at the moment.

Interest rates are tumbling daily, and it seems like the paltry best buy accounts that do come up are quickly withdrawn once more than a few eager savers get wind of them.

It's a sorry state of affairs.

Who's to blame?
The record low base rate – which has been around for over four years now – is often blamed for the dismal savings rates, but it's not the only factor.

In January, the Bank of England admitted that the Funding for Lending Scheme has played a major part in driving down rates for savers.

The scheme was introduced last summer in a bid to boost lending by providing banks and building societies with cheap loans.

But this access to cheap cash means banks and building societies don't need to rely on our savings to balance their books right now.

Time for new ideas
However, even though the banks aren't desperate for our saving pots they are still quite keen on gaining more current account customers.

And oddly that's where savers can cash in.

At the moment the Santander 123 Current Account, Nationwide FlexDirect, Clydesdale and Yorkshire Banks' Current Account Direct, Lloyds TSB Current Account with Vantage and TSB Classic Account with Enhance all pay healthy levels of credit interest.

So in theory these current accounts where we put all our spending money could double up as a savings vehicle.

What's on offer?
The Santander 123 Current Account is famed for paying up to 3% cashback on direct debits but it can also serve as a very attractive savings account. Here's how the interest rates works:
  • 1% on balances between £1,000 and £1,999;
  • 2% on balances between £2,000 and £2,999;
  • 3% on balances between £3,000 and £20,000.
So if, for example, your balance is £4,000, you'll earn 3% on the whole balance not just on the money above the £3,000 threshold.

Note that you need to pay in at least £500 a month, have two direct debits set up and pay a monthly fee of £2. However, if you have all your direct debits set up you can earn cashback on some of them.

With the Nationwide FlexDirect account you get an even better return of 5% but this time only on balances up to £2,500 – so not great if you are able to squirrel away more. What's more, you'll only earn 5% for the first year you have the account. After that, the rate falls to 1%.

You don't get cashback with the Nationwide account but you do get access to Flexclusives which are special deals on products like mortgages and loans exclusive to existing customers.

You need to pay in £1,000 a month to earn interest.

Both Clydesdale and Yorkshire Banks have just launched the Current Account Direct, which pays 4% interest on balances up to £3,000 until March 2015. You have to pay in £1,000 a month to qualify and the accounts are designed to be managed online, via a smartphone app or over the phone.

Elsewhere Lloyds Bank offers those who add Vantage to their current account the chance to earn 3% on balances between £3,000 and £5,000. Vantage is free but it means you must deposit £1,000 each month and stay in credit to earn the interest.

An identical product is offered by TSB with its Classic Account with Enhance.

As you can see there is potential for a dual role with these current accounts. Or you can just use them instead of a savings account and hold your main current account elsewhere.

Compare high-interest current accounts

This article has been updated since it was originally published
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