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The 5% home for your money

The 5% home for your money

Category: Banking

Updated: 10/04/2014
First Published: 10/04/2014

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 It is now over 6 months old so the content may be out of date.

The TSB Classic Plus account was launched just last week but has taken the market by storm, being the only current account available that offers 5% interest on credit balances up to £2,000 – with no end date in sight.

It's attracted attention not only for being a flexible current account with minimal fuss – the only requirements are to fund it with £500 per month and set up online banking/paperless statements – but as being a viable savings account too, with the 5% interest rate being far better than any other savings product available on the market.

There's no need to use it as your main bank account either, and theoretically you could put the £500 in and take it straight out again. And, because there's no need to set up direct debits, you can simply transfer the money or pay it in over the counter for total flexibility.

Sounds like a good deal to us! But, this account will only be a suitable savings product for those that have up to £2,000 to stash away right? Well, not exactly…

Earn up to £600 in interest per year

Under TSB terms and conditions you're allowed to have up to two of these accounts per person – enough for £4,000 in savings – as well as a joint account, so theoretically, a couple could have six accounts between them.

This would be enough for £12,000 in savings, split between all six accounts, which would result in interest of £600 per year.

The only downside to this is that each account will need to be funded with £500 per month, but again it isn't really a downside – there's nothing to stop you from putting £500 in each account and taking it back out later that same day, so you won't need to tie up your disposable income with your savings.

TSb Classic Plus

What about savings accounts?

Well, let's not get carried away – a savings account could still be a viable home for your money, particularly if you've got more than £4,000 to save individually and £12,000 as a couple, but just don't expect to achieve a 5% interest rate.

Currently the top pick comes from FirstSave, with its 7 Year Fixed Rate Bond First Issue offering 3.50%, but you'd have to invest £3,000 to get the same amount of interest as you would with the TSB Plus account – and you'd need to keep it tied up for the full 7 years too, as early access isn't allowed.

Of course, the interest you receive on any savings or current account will still be subject to tax at your nominal rate, so you should never overlook ISAs if you want to keep your money safe from the taxman – particularly if you've built up an ISA nest egg over the years.

Again, just don't expect to receive interest at 5%, but if you put in your full ISA allowance for the current tax year in Earl Shilton's 90 Day Notice cash ISA (paying 1.80%) you could still get around £104 in interest over the year, albeit with a higher initial investment than the TSB account. If you only had £2,000 to invest, however, you'd be left with just £36 after the year, so in this case the current account could win the day.

So, which is best?

As ever, it all comes down to your individual circumstances. If you've got a relatively small amount in savings then the TSB account should definitely be considered as the best home for your money, as the interest earned will far outweigh anything else you could get in the savings market – even after tax.

However, if you've got more than that then you could still need to supplement it with other savings accounts and should always try to make the most of your tax-free allowance, so it all comes down to you.

The TSB Classic Plus account is now available to those who want to take advantage of a 5% interest rate, but make sure to check out our pick of the top savings rates and cash ISA deals so you can make the most of your money from all angles – no matter how much you've got to invest.

What Next?

To apply for the TSB Classic Plus click here

In the meantime, check out our pick of the top savings rates and cash ISA deals so you can make the most of your money – no matter how much you've got to invest.

Compare the best current accounts with High interest

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.