Current accounts are putting traditional savings accounts to shame. We're all too aware of how poor the savings market has become, particularly for instant access accounts, with rates being at rock-bottom levels and generating paltry returns for your money – but current accounts could provide the solution.
There's been a definite surge in the number of high-interest current accounts available over the last few years, and the latest addition to the market has brought the sector back to the foreground once again. Tesco Bank's new release pays an impressive 3% on in-credit balances up to £3,000, following hot on the heels of TSB (paying 5% interest up to £2,000) and Nationwide (5% up to £2,500).
Moneyfacts analysis has revealed just how competitive these deals are – and how much you could be earning in comparison to savings accounts.
Top paying credit interest account
Nationwide BS FlexDirect
Gross interest on £1,500 pa
Top Paying Easy Access Account
Britannia Select Access Saver 5
As the table shows, if you put your savings pot of £1,500 into the Nationwide current account, you'd earn £50.08 more over the year than if you opted for the top-paying instant access savings account.
It's a big difference, and it could add up even more if you've got larger savings pots.
And there are plenty to choose from. In fact, the top four high-interest current accounts pay more interest on in-credit balances than any of the 190 instant access accounts, 80 instant access ISAs and 219 fixed rate bonds (one, two, three or four-year) currently available on the market – and there are only 28 instant access accounts and 33 ISAs that offer higher interest than any of the top 10 current account equivalents.
"No-one would have expected the current account to become the potential saviour of the savings market, but many credit-paying current accounts are not only matching instant access accounts – they're also offering rates that are better than some five-year bonds," said Sylvia Waycot, Editor at Moneyfacts.co.uk.
"Of course, the risk to putting your savings into a current account is that the entire account could be wiped out should you become a victim of fraudulent withdrawals, but that protection is in effect costing up to £50 a year in lost interest – a cost that won't sit comfortably with many of us."
There are some drawbacks, of course. Most accounts will only pay you interest up to a certain level, for example, while others have minimum monthly funding requirements. But, if you were really serious you could always have several accounts dotted around and could spread your funding requirement between the lot, so there are ways around it.
And, as Ms Waycot points out, there are additional benefits from choosing high-interest current accounts too: "Current accounts are no longer the boring manila accounts of old. These days they offer rewards, contactless payments, mobile banking, packages that include insurance as well as appealing credit interest."Instant access accounts, on the other hand, have not evolved in the slightest. Rates are rock bottom, and if you don't use the account you could find it becomes a closed issue – an excuse to pay even less interest.
"The only thing instant access accounts need to do to be attractive is offer competitive rates. These days those rates must also be competitive with current accounts. If not, what exactly do they have going for them?"
Well, not a lot – and certainly not if you're serious about generating returns from your hard-earned cash. Current accounts could be the ideal alternative, particularly for savers that have got smaller pots, and as an added bonus you can access that cash should you need it.
It's a whole new world for the savings market, and it'll be well worth seeing what current accounts have got to offer. The question is, will these high-interest current accounts force savings providers into action and lead to a boost in rates? We can only hope!
Compare the best available high interest bank accounts
Compare the top easy access savings accounts excluding bonus
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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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