The current accounts paying more than savings accounts

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

Interest rates are tumbling, and it seems like the paltry best buy accounts that do come up are quickly withdrawn once more than a few eager savers get wind of them.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 more than five years now – is often blamed for the dismal savings rates, but it's not the only factor.%VIRTUAL-ArticleSidebar-savings%

The Funding for Lending Scheme has played a major part in driving down rates for savers.

It was introduced in August 2012 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 rely less on our savings to balance their books.

In January 2014 the funding to support mortgage lending stopped but banks and building societies still have access to the funds until the end of January 2015.

Time for new ideas

However, even though the banks aren't desperate for our saving pots they are keen on gaining more current account customers, particularly since the launch of the seven-day current account switch back in September 2013.

And oddly that's where savers can cash in.

At the moment there are several current accounts all paying healthy levels of credit interest.

What's on offer?

The Nationwide FlexDirect Account pays a top return of 5% on balances up to £2,500 for 12 months. After that, the rate falls to 1%. The account also comes with a 12-month fee-free overdraft and access to 'Flexclusive' deals on mortgages, savings, loans and credit cards. You need to pay in £1,000 a month to benefit from the features though.

The TSB Classic Plus Account also offers a top rate of 5% but only on balances up to £2,000. However, the rate won't fall away after 12 months and you only need to pay in £500 a month to qualify for interest.

Lloyds Bank offers tiered interest rates on its Club Lloyds Current Account, with the top bracket paying 4% on balances from £4,000 up to £5,000. The account also comes with the choice of one lifestyle benefit each year. In order to earn interest you need to set up two direct debits on the account and there's a £5 monthly fee unless you pay in £1,500 a month.

The Santander 123 Current Account also pays tiered interest rates. You can get 1% on balances from £1,000, 2% on balances from £2,000 and 3% on balances from £3,000 up to £20,000. The account also offers up to 3% cashback on direct debits. However, the account needs to be funded with £500 a month and have at least two direct debits set up in order to earn interest and cashback. It also attracts a £2 monthly fee and this is rising to £5 a month from 11 January.

The Tesco Bank Current Account offers 3% interest on balances up to £3,000. You can earn one Clubcard point for every £4 you spend in Tesco and one for every £8 spent elsewhere on your debit card.

Elsewhere, Bank of Scotland offers those who add Vantage to their Classic Current Account the chance to earn 3% interest on balances from £3,000 up to £5,000. Vantage is free but it means you must deposit £1,000 each month and stay in credit to earn the interest.

And you can earn 2% interest with Clydesdale Bank and Yorkshire Bank on up to £3,000, via both banks' Current Account Direct. Note that you have to pay in a minimum of £1,000 a month to qualify.

Verdict

If you're chasing the best return for your cash considering a current account instead of or as well as a savings account makes a lot of sense at the moment.

The evidence seems to be stacked against easy access saving accounts, Cash ISAs and fixed rate bonds. Current accounts pay more, come with other perks and provide easy access to your pot.

Compare high-interest current accounts

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