The bank accounts that pay the highest interest rates
At the moment there are a number of current accounts all paying healthy levels of credit interest and the introduction of the Personal Savings Allowance (PSA) on 6 April 2016 has made them even more attractive.
The new rules mean basic rate taxpayers are now able to earn up to £1,000 in savings interest without attracting any tax at all, while higher rate taxpayers will be able to earn £500. There is no PSA for additional rate taxpayers.
So if you're thinking about what to do with your savings now, these could be a good option.
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 and register for paperless statements 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 and is great for bigger balances. 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. 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 £5 monthly fee.
The Tesco Bank Current Account offers 3% interest on balances up to £3,000. You can also 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.
Best account depends on your balance
However, you can only earn the top returns on limited balances (up to £2,500 with Nationwide, £2,000 with TSB and from £4,000 up to £5,000 with Lloyds Bank). That's great for new savers but not a lot of use to those who have a lot stashed away already.
For larger balances there's the Santander 123 Current Account. It also offers a rate better than a five-year fixed rate Cash ISA or bond, but can offer unlimited access to your cash. Plus, unlike Nationwide, TSB and Lloyds, you can save more as the 3% rate applies to balances from £3,000 up to £20,000.
However, you will need to factor in the £5 monthly fee the account attracts to make sure you're getting the best deal. You end up paying £60 a year, which sounds like a lot, but for an account which pays high levels of cashback and credit interest, you should end up quids in.
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 cash.
