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Current accounts become a salvation for savers

Current accounts become a salvation for savers

Category: Savings

Updated: 07/07/2015
First Published: 07/07/2015

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Once upon a time, current accounts paid far less favourable rates of credit interest than standard savings accounts, but now things couldn't be more different. Average savings rates have been on a general downward spiral for years, whereas high interest current account deals are taking off – which could make them the perfect place to get real returns from your hard-earned savings.

The surprise saviour

Let's get right to it. Our analysis shows that savers can earn over three times more interest using a current account compared with the best easy access account on the market – TSB, for example, currently offers a rate of 5% on its Classic Plus account, while the best easy access account (offered by RCI Bank UK) pays just 1.50%, a measly sum by comparison.

A few calculations show just how much better off you could be by choosing a current account over a traditional savings account. For example, a balance of £2,000 kept in TSB's Classic Plus account could earn you £97.80 in interest per year, or if you had a bigger savings pot, you could stash away £20,000 in Santander's 123 Current Account (which pays up to 3% interest) to pocket £592.

Compare these figures with RCI Bank UK's Freedom Savings Account, where you'd earn interest of just £30 and £450 for each respective balance per year.

"It wouldn't be surprising if savers flock to these accounts and abandon standard savings accounts altogether," said Rachel Springall, finance expert at Moneyfacts. "Better yet, the attractive interest rates aren't the only perk offered by current accounts, as savers can also take advantage of things like lucrative switching incentives.

"For example, Clydesdale Bank and Yorkshire Bank pay 2% in interest on balances of up to £3,000, and give switchers £150 in cashback when they switch accounts. This means that customers can earn a total of £209.40 in the first year from interest gained on a £3,000 balance plus the switching incentive."

The perks don't stop there, either. Once providers have secured you as a customer, they'll often give you access to a raft of different financial products in their range – often with preferential rates – some of which aren't available to non-banking customers. For instance, M&S Bank and first direct offer interest rates of 6% on their regular savings accounts when they're linked to one of their current accounts, so it could be worth doing a bit of research to see what other perks you can benefit from.

Make the most of your savings

Opting for a current account really could be a great way to make the most of your savings, be it through high interest deals with the account itself, or through preferential rates on a savings account when you become a banking customer. However, as Ms. Springall adds, "in order to make the most of current account interest rates, savers must ensure that they abide by the rules".

High interest current accounts typically come with certain restrictions, such as a limit on the balance that can earn the headline rate of interest, minimum monthly payment amounts, or requirements to close your former account. Breaking any agreements will mean that the deal is snatched away and any advantages will be lost, so it's important to keep track of all transactions on a regular basis.

But, once you've got everything sorted, it's time to benefit! "Current accounts are a salvation for savers in the current low-rate environment, and when used right, can be treated just like an ordinary easy access account," said Ms Springall, so it's time to make the most of them. Check out the top-paying high interest current accounts and see if you can get more from your money.

What next?

Find out how to make high interest current accounts work if you've got a bigger savings pot

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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