Should you use a current account to boost your savings returns?


Piggy bank with young man worrying in background

Are you fed up of low savings rates? Even though the Bank of England has started making noises about putting interest rates up, many savings accounts continue to pay less than 1%.

However, savvy savers are using current accounts paying up to 5% to earn more interest on their money.

Low savings rates
With the Bank of England base rate now at 0.5% for more than five years, savers have been finding it hard to even beat inflation for some time now.Even the best easy access savings accounts are currently paying less than 1.5%.

Fortunately, however, current account providers keen to attract new customers have upped their game when it comes to paying interest on in-credit balances. An interest-bearing current account could well prove the best home for your savings as a result.

High current account rates
The highest interest rate available from a current account at the moment is an incredible 5%, which is paid on balances of between £1 and £2,500 held in the Nationwide FlexDirect account.

The Club Lloyds current account, meanwhile, pays a generous 4% on between £4,000 and £5,000, the Santander 123 Current Account pays 3% on between £3,000 and £20,000, and the TSB Classic Plus account pays 5% on balances up to £2,000

The best account for you will therefore depend on the size of your savings balance.

But beware!
With each of the accounts mentioned above, you will have to jump through a couple of hoops to take advantage of the great interest rates on offer.

For a start, they all have minimum funding requirements, which means you have to pay in a certain amount each month.

With Nationwide, this is set at £1,000, while Santander and TSB customers must pay in £500 (and Santander requires you to pay at least two monthly direct debits) and Lloyds customers have to find £1,500, each and every month.

Fail to meet these conditions, and you will have your interest cut or be charged a fee - Lloyds, for example, imposes a £5 fee for each month you fail to pay in at least £1,500.

Those interested in the Santander account should also be aware that it comes with a monthly fee of £2, while anyone considering switching to Nationwide needs to know that the impressive 5% headline rate is only paid for the first 12 months, after which it falls to 1%.