At one time, savings accounts were the only sensible place to put your hard-earned cash if you wanted a meaningful return, but unfortunately, that's no longer the case. Rates remain dismal, with the number of cuts dramatically outweighing rate rises as the base rate cut continues to devastate the market. The long-term sector has been particularly hard hit with average rates plummeting, so wouldn't it be great if there was an alternative? Well, there is - and it comes in the form of high interest current accounts.
High interest current accounts are exactly what they say on the tin - current accounts that offer high rates of interest on in-credit balances. These accounts can be perfect for those seeking a decent return as they often boast far higher rates of interest than many savings accounts - our latest research shows that they can offer an equivalent interest rate of up to 11% - and providers are actively competing for your business by offering a growing number of options.
As such, it's little wonder that these accounts are becoming a viable alternative to traditional savings vehicles, but they're not necessarily ideal. They tend to have certain requirements, such as a minimum monthly funding amount, a time limit on the interest deal and - more often than not - an upper limit on the balance that they'll pay interest on.
However, if you're looking for an alternative for a portion of your savings, and don't mind a bit of active management, they could be a great solution. We've compiled the top six high interest current accounts on the market (based on a typical savings balance of £1,000) to help you find the one that's right for you.
Halifax Reward Current Account - Funded
Despite this not technically being a high interest account, the level of cashback offered (£5 per month) means it works out as offering the best rate on the minimum funding amount of £750. The account also comes with extra incentives, including a generous cashback scheme and a competitive introductory 0% overdraft period of six months.
However, customers should note that the account must stay in credit for the monthly reward to be received, and it should ideally be the customer's main bank account, with at least two monthly direct debits needing to be linked to it. Furthermore, after the initial overdraft deal has come to an end, a usage fee of between £1 and £3 per day will be applied (or £5 per day for unauthorised overdrafts), so it may not be suitable if you regularly dip into your overdraft.
TSB Classic Plus
The TSB Classic Plus account secures second place by paying an impressive 5.00% interest on balances of up to (almost) £2,000. A small monthly funding amount of just £500 is required, but customers will need to register for online banking and paperless statements to be eligible for the interest rate and cashback rewards.
Unlike some accounts there's no end date to the high interest deal, so there'll be no need to review things in a year's time in order to continue securing the returns. It also comes with impressive additional benefits, such as cashback and preferential mortgage terms. However, like most high interest accounts, it's been designed for those who stay in credit and comes with a fairly hefty rate on authorised overdrafts (after the first £25 fee-free buffer) as well as unauthorised overdraft fees of up to £10 per day. Customers therefore need to ensure that they keep their balance topped up.
Nationwide BS FlexDirect - Funded
Easily making the top three is Nationwide Building Society's FlexDirect bank account, also paying 5.00% but this time on balances of up to £2,500 for the first 12 months. As an added bonus, customers won't need to pay any interest or fees for an authorised overdraft for the same time period.
This account also comes with a generous benefits package, including discounted car insurance, a reward scheme and access to preferential rates. However, at least £1,000 must be paid into the account each month and the 5% rate is only paid for the first year, after which it drops to 1%. Overdraft charges are again fairly high, with unauthorised overdraft fees reaching up to £5 per day/£60 per month.
Tesco Bank Current Account
Sitting comfortably in fourth place is this account from Tesco Bank, which offers a highly competitive 3% interest on in-credit balances of up to £2,999.99.
Unusually for the high interest sector, this straightforward deal has no minimum funding requirement or monthly fee, while the generous points scheme adds to the appeal to make it particularly suitable for loyal Tesco shoppers. However, these benefits will need to be weighed up against the hefty overdraft rate of 18.90%, which on the plus side, is a flat rate with no daily or monthly charges to worry about.
Nationwide BS FlexPlus
Nationwide has secured a second deal in the top five with its FlexPlus current account. Unusually, it has no minimum funding requirement and still pays cashback of 3% on balances of up to £2,500, although it comes with a monthly fee of £10.
However, customers will be able to get a generous package of features in return for the monthly charge, including mobile phone insurance, travel insurance, vehicle breakdown cover and extended warranties, as well as the incentives offered with the previously mentioned Nationwide account.
Bank of Scotland Classic with Vantage
Just making it in the top six is Bank of Scotland's Classic with Vantage account, offering up to 3% interest for certain balances, which could make it a great choice for those who like to keep their account topped up.
The account offers the additional flexibility of being operated via any channel, while the generous cashback scheme and preferential terms on other financial products add to the appeal. However, it again comes with a fairly high authorised overdraft rate and monthly fee, while unauthorised charges can reach up to £10 per day (after a £10 fee-free overdraft buffer), so customers will need to budget carefully.
Information & Rates correct as at: 21.09.2016
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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