Your current account might not seem like the most likely place to make a little extra cash, but that doesn’t mean it’s an impossible task.
By their very nature, current accounts aren’t intended to earn a lot of money. They are places to temporarily hold cash, with money flowing in from your salary and flowing out as you pay your bills, buy food and cover other monthly expenses.
But with a little research, your monthly slush fund can moonlight as a place to make money. Just follow these steps to find the best current account interest rate:
- Set your savings priorities
- Go comparison shopping
- Cast a wider net
- Look for sign-up bonuses
- Be ready to jump through some hoops
- Watch out for fees
1. Set your savings priorities
First, you want to determine why you might want a current account that pays interest instead of a savings account or other high-interest fixed rate bond that offers a higher return in exchange for you agreeing to having limited access to your money.
Maybe you’ve already opened a new savings account, you’re planning for an upcoming expense or just have commitment issues.
Once you’ve decided you want an interest-bearing current account, the best place to start is at the bank where you currently have an account. If it has an account with a decent yield, great. You don’t have to move.
But chances are, especially if you’re at a large bank, you may be offered a ridiculously low interest rate – or in many cases, no interest at all.
2. Go comparison shopping
First things first: shop for a current account online to see what other banks have to offer.
3. Cast a wider net
Much like with ISAs and fixed rate bonds, online banks often pay higher rates than traditional banks because they have lower overhead costs. They have no or limited branch network, which means they can afford to pay more.
If you’re willing to look a little further afield than a conventional bank account, there are some fintech startups worth looking at. Moneybox makes it easy to build your savings – and invest in the stock market for potentially larger (but riskier) returns. Moneyfarm is a digital-only tool that makes it easy to invest in a stocks and shares ISA (but again, your savings can go up and down with the stock market). You can withdraw your money from both of these apps at any time, but it can take a few days for the process to complete – so bear that in mind if you’re looking for instant-access to your funds.
4. Look for sign-up bonuses
Although it is true the largest banks are among the lowest interest-rate payers, they often run promotions – sometimes offering as much as £200 – for new accounts.
Essentially, these banks have determined that if they are going to spend money on acquiring new customers, offering them cash or other bonuses is an effective way of getting them in the door.
Bonuses are not exclusive to large banks, but if you’re already a big bank customer and are accustomed to their massive branch networks and cutting-edge mobile apps, taking another big bank up on its incentive might be a good idea for you.
5. Be ready to jump through some hoops
Banks pay customers higher rates to leave their deposits untouched for a set period of time in a fixed rate bond. Typical current accounts offer no or very little interest. If you want the best of both worlds, you have to be ready to jump through some hoops.
High interest current accounts often require higher minimum deposits, or cap the amount that is eligible for the higher rate. These thresholds can result in some tricky maths – it isn’t just a case of picking the account with the highest interest rate. One with a lower rate but a higher cap might pay more.
Others might require you to opt in for electronic statements, or make a minimum number of direct debits per month.
At the moment, most of the best high interest accounts in the UK are linked accounts. This means you need to open a normal current account with the bank – and then you’ll gain access to a linked savings account.
6. Watch out for fees – and introductory periods
High interest bank accounts often come with more strings, and there are sometimes penalties for not fulfilling account requirements.
You don’t want a monthly fee to eat away at your meagre earnings because your minimum balance dropped below the threshold.
Make sure you understand what the account requires of you before agreeing to place your money there.
Perhaps most importantly, though, most high interest bank accounts and regular savings accounts only offer a high rate of interest for a 12-month introductory period. After that you’ll need to switch accounts again if you want to keep earning a higher rate of interest.
Now read about how to use your credit card correctly