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How to use current accounts for your savings

How to use current accounts for your savings

Category: Savings

Updated: 03/12/2014
First Published: 02/12/2014

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 It is now over 6 months old so the content may be out of date.

There's no getting away from it – savings rates aren't exactly giving you a decent return at the moment. But, some current accounts are, and that's why a lot of people are choosing them as a viable alternative to traditional savings vehicles. However, with most high interest current accounts only offering the headline rate up to a certain balance, what can you do if you've got a significant amount to invest? Well, we've got a few ideas…

Mix and match

For many people, this will be the best way to go about it. There's nothing to stop you from having several current accounts open at the same time, so why not split your savings between them all? Yes, you'll still need to have your "true" current account where your day-to-day transactions take place, but as long as you meet the requirements of your other accounts, there's no reason why they can't be purely used as savings vehicles. However, you'll need to be truly organised if you want to reap the rewards.

Be organised

The one thing you absolutely must do is bear in mind the various restrictions of the accounts, and ensure you comply with them perfectly. Many have minimum monthly funding requirements (or will ask for a monthly fee) and others will require you to link several direct debits with them, and although it may seem like a hassle, the interest you'll be able to earn could be well worth it. You could even set up standing orders to transfer the minimum monthly funding requirements into each account – that way, you'll only need one cycle of payments to cover everything (but just make sure you time it all correctly, otherwise you could come unstuck!).

An example – where should I put £35K?

Let's illustrate this more clearly by using an example. Say you had £35,000 in savings and wanted to get the best returns – where would you put it, and how much could you earn if you did?

First up, you could look for a current account that pays 5% interest. TSB's Classic Plus account pays this rate on balances up to £1,999.99, so you'll put that portion of your savings straight in. You'll need to register for online banking and paperless statements to be eligible – a small price to pay for many – and it'll need a minimum monthly funding requirement of £500, but as we've discussed, that should be achieved easily enough. ANNUAL INTEREST: £99.99

Nationwide's FlexDirect could be next on your list. This also pays 5% interest, but this time on balances up to £2,500, so the next chunk of your savings could go here. A minimum monthly funding requirement of £1,000 is required and no direct debits need to be linked, but it's important to remember that the headline rate will only be offered for the first 12 months. ANNUAL INTEREST: £125

Then, for the next £5,000, a Club Lloyds account from Lloyds Bank could be ideal. This pays tiered rates of interest depending on the balance, and offers 4% on savings of between £4,000 and £5,000. The monthly fee of £5 is waived if a minimum of £1,500 is deposited per month, and two direct debits must go out per calendar month. ANNUAL INTEREST: £200

Another £5,000 (almost) could go into the Classic with Vantage account from Bank of Scotland. It offers 3% interest on balances between £3,000 and £4,999.99, provided £1,000 is deposited each month. ANNUAL INTEREST: £149.99

A further £20,000 could be stashed away in Santander's 123 Current Account, another tiered arrangement that pays 3% interest on balances between £3,000 and £20,000. It has a small fee of £2 per month and requires monthly funding of £500, and also asks for two direct debits to be set up. ANNUAL INTEREST: £600

The remaining £500 could be split between one or several of the above, or it could even be part of the minimum monthly funding requirement that can do the rounds for each account. That way, you won't need to stump up too much extra to meet the minimum requirements.

In the money

Based on this example, your savings pot of £35,000 could garner annual interest of £1,174.98 – a very tidy sum, and far more than most savings accounts can offer. Currently, the top-paying instant access account offers a rate of just 1.5%, which would result in an annual return of just £525 on the same balance. Hardly comparable, just showing how much a bit of time and effort could be worth.

This is of course only an example, and you could find ways to maximise your returns even more. Some banks will let you have more than one current account and others will let you have joint accounts, so if you were to split the savings between your accounts and those of your partner, you could have even more stashed away in the top-paying versions.

It may seem like a lot of work and it'll require some careful financial management to ensure you meet the requirements of every account, but the trade-off could be more than worth it. It could be a viable alternative to traditional savings accounts and could really help you get more from your money, so start your search for current accounts and see how much you could make.

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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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