The future of high interest current accounts

Advice from the experts at MoneySuperMarket

Row of piggy banks on graphic surface

Savers should take advantage of current accounts offering higher returns than most savings accounts around today.

What felt like a long time ago, you'd be lucky to earn any interest at all whilst your current account was in credit, where many accounts paid a pitiful 0.1% interest annually.

This has now changed, with a very competitive environment amongst banks fighting for your patronage resulting in the launch of several high-interest paying bank accounts, some offering interest as high as 5%.

It is hardly surprising that the results from recent research by MoneySuperMarket found that half of savers now actively choose to stash their savings in current accounts.

Top current accounts

There are many high-interest paying current accounts to choose from on the market.

Nationwide's Market Leading FlexDirect current account pays 5% AER on balances up to £2,500 for the first year, but after that, the rate falls to 1%. You must pay in at least £1,000 each month to qualify.

TSB's current account, for example, which launched in March 2014, pays an annual equivalent rate (AER) of 5% on the first £2,000. You must deposit in £500 a month and sign up for paperless billing to qualify.

Santander's 123 current account, which has been around for three and a half years, pays 1% on balances between £1,000 and £2,000, 2% on balances from £2,000 up to £3,000 and 3% on balances over £3,000.

If you pay your household bills by direct debit from the account, you'll also earn cashback of between 1.00% and 3.00%. For example, you'll earn 1% cashback on your spending on water, council tax and Santander mortgage bills, 2% on gas and electricity and 3% on phone, internet and TV.

There's a monthly fee of £5 and you have to pay in £500 a month and set up two direct debits.
Not all current accounts try to tempt savers with high interest rates though.

Rather than paying a percentage return, First Direct's 1st account offers a £100 cashback reward on switch, provided you pay in £1000 a month.

Similarly, the Co-operative Bank's standard current account offers customer's switching bank accounts a £150 cashback reward provided they meet certain conditions.

You must pay in a regular wage/salary and have 4 or more direct debits to eligible for the reward.

Are these set to stay?

Although current accounts offer great returns at the moment, there is no guarantee they will continue to do so indefinitely.

Kevin Mountford, head of banking at MoneySuperMarket said; "Current accounts have evolved over recent years and in the main this mirrors the demise of savings rates. Banks know that the design of 'in credit' offers limits their risk but offers a real incentive to consumers and this has created a real battle ground around current accounts.

"Until the market gets back to a level of normality and savings returns improve, the current offerings should continue. Things may start to change in 2016 but in the meantime consumers should embrace current account switching and make the most of what's available."

Banks understandably won't commit to promising their current accounts will be around for the long term, so it makes sense to take advantage of competitive rates while they are on offer.

A spokesman for Santander said; "We regularly review products to ensure that they are competitive, provide value for our customers and also contribute to our sustainability. We continue to do so."

If you are considering moving current accounts remember that under switching rules introduced in 2013, the move won't take longer than seven days. There's also a Guarantee, so you won't have to pay any charges or fees in the event that something goes wrong while the switch is taking place.