Is a current account a good place to save?

Over a third of savers (35%) over the age of 55 are opting to put their savings in current accounts over savings accounts, research from Ford Money has revealed. Although some current accounts can offer rates as high as 2.02%, significantly more than the highest-paying easy access savings account, which currently stands at 0.96%, putting savings into a current account may not offer the best return on deposits.

To help savers decided whether to put their hard-earned savings into a current account or a savings account, below we’ve used an example of having £10,000 of savings to compare the rates of both to see which offers the best returns.

The highest-paying current account currently comes from Virgin Money, which pays a highly competitive rate of 2.02% AER on its Virgin Money Current Account. Although a linked savings account must be opened at the same time the account is opened, there is no account fees or minimum monthly payments in order to receive the 2.02% interest. The one drawback with this account is that the 2.02% interest is only applied to deposits of up to £1,000. This means that, using our example of having £10,000 of savings to deposit, savers will only earn £20.20 per year in interest. As a result, savers would likely be better off depositing just £1,000 into this account and then depositing the remaining £9,000 into a savings account.

Savers who are happy to lock their money away for a period of five years or more would likely benefit more from depositing their money into a long-term fixed rate bond. At the moment, Bank of London and The Middle East (BLME) has the highest-paying long-term bond with the five-year version of its Premier Deposit Account paying an expected profit rate of 1.60% gross. Expected profit on this account must be paid away, so if £9,000 was deposited, savers can expect to receive £144 each year, resulting in a total of £720 during the five-year period.

If £9,000 was deposited into this bond and £1,000 in the Virgin Money current account, savers would receive £164.20 per year from both accounts combined in interest.

But if savers want to be able to access their money, they may prefer an easy access savings account. The top-paying easy access savings account current comes from Coventry Building Society, which pays 0.96% gross on anniversary on its Double Access Saver (Online) (4) account.

If £9,000 was deposited into this account, savers would expect to receive £86.40 in interest on maturity. This, together with the £20.20 gained in interest on the Virgin Money current account, would mean that they receive a total of £106.60 in interest.

Savers who are happy to lock some of their money for a short period of time may want to consider depositing some of the £10,000 into a one year fixed rate bond. The best-paying one year fixed rate bond that can be opened with a deposit of under £5,000 currently comes from BLME, which pays an expected profit rate of 1.20% gross on maturity. If savers deposit £4,000 into this account, they could expect to get £48 in interest on maturity.

So with £1,000 in the Virgin Money current account at an interest rate of 2.02%, £5,000 in an easy access savings account paying 0.96% gross and £4,000 in a one year fixed rate bond paying an expected profit rate of 1.20% gross, after a one-year period, savers would receive £116.20 total in interest on their £10,000.

Clearly, unless savers are happy to lock their money into a long term fixed rate bond, they need to be savvy with where they put their savings and may want to consider splitting their savings across a number of different accounts, including high interest current accounts, to ensure that they are able to access the funds they may need and still get the best possible rates on their savings.