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Beat inflation with high interest current accounts

Beat inflation with high interest current accounts

Category: Banking

Updated: 20/07/2017
First Published: 20/07/2017

Figures released earlier this week revealed that there are still no savings accounts that can beat inflation, despite the rate of CPI falling for the first time since October last year. However, all is not lost – traditional savings accounts may not pay even 2.6%, but there are a few other options that can provide a real return, and high interest current accounts could be one of your best bets.

These accounts boast interest rates of up to 5%, as you can see by checking out our Best Buys, though you may need to go through a few hoops in order to secure that kind of rate. For example, most come with minimum monthly funding and direct debit requirements, and just about all impose a limit on the amount of money you can earn interest on.

However, for some, this could be a small price to pay – after all, at least you'll get an inflation-beating return on some of your savings! There are ways you can try to beat the system, too, and it all comes down to active management.

How to make high interest current accounts your new savings vehicle

If you've only got a small savings pot, the process is pretty simple – just compare high interest current accounts, make your decision, and open one! Some even offer valuable switching incentives (albeit to a lesser extent than years gone by), so you have the chance to boost your savings from the get-go.

However, if you've got more than a few thousand pounds to invest, you'll need to be a bit savvier. There's nothing to stop you from opening a high interest current account with several different providers and splitting your savings between them, but you'll have to make absolutely certain that you can meet the requirements of each, otherwise your hard work will be for nothing.

This means you'll need to get into the habit of transferring money between your accounts on a regular basis to ensure you meet minimum funding requirements, and if they all have direct debit requirements, you'll want to set up a couple with each account, too. Make sure to sign up to paperless statements and online banking – or anything else the account could require – and check your various statements on a regular basis to ensure everything's going to plan.

It may sound like a hassle, but if you've got a decent savings pot, it could be worth it. After all, there's no other way of being able to secure inflation-beating returns with cash-based savings, so a bit of effort now could ensure you reap the rewards down the line. So just what accounts could you consider?

The best high interest current accounts

  • TSB Classic Plus account

This account from TSB boasts an interest rate of 3% on balances up to £1,500.99, as well as monthly cashback of £5 if you make 20 debit card purchases in the month, and another £5 cashback if two direct debit mandates are held. Just sign up for online banking and paperless statements, and pay in at least £500 per month. POTENTIAL RETURN AFTER FIRST YEAR = £165 (£45 in interest on £1,500 in savings plus £120 cashback)

  • Halifax Reward Current Account

This deal doesn't offer an interest rate, but it does give you £3 cashback (net) each month if you pay in at least £750, don't go overdrawn and hold two different direct debit mandates. For a limited time, it also offers a £125 cashback incentive when you switch accounts using the Current Account Switching Service, provided the previous account is closed. POTENTIAL RETURN AFTER FIRST YEAR = £161 (£3 monthly cashback plus £125 switching incentive)

  • Nationwide FlexDirect

Nationwide's "funded" version of its FlexDirect account boasts an impressive interest rate of 5% on balances up to £2,500, provided you pay in at least £1,000 each month. POTENTIAL RETURN AFTER FIRST YEAR = £125 (based on £2,500 in savings)

Let's say you had £4,000 in savings that you wanted to split between TSB and Nationwide, and opened a Halifax account for good measure. Provided you met every account's demands, you could earn as much as £451 in a year – that's not bad considering the state of the savings market at the moment!

These are just a few of the benefits of each account, too. Many come with additional cashback incentives when shopping at selected retailers, for example, as well as preferential rates on everything from mortgages to travel money, so you could benefit even more. So, why not consider a high interest current account as your new savings vehicle? Given that it's one of the few ways you can secure an inflation-beating return, it could easily pay off.

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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