Current accounts help you to manage your day-to-day money. They allow you to receive payments such as wages, benefits, tax credits and/or pensions and pay out for expenses including bills, food and travel.
But with savings rates on deposit accounts paying little or no interest, current accounts which pay interest can be a useful alternative.
With a little research, your monthly income can moonlight as a savings account.
Follow these steps to find the best current account interest rate:
Decide what you want to save for
Shop around for rates
Consider alternative savings accounts
Look for the bonuses
Be ready to jump through some hoops
Watch out for the penalties
Some current accounts pay a higher rate of interest than a deposit account. This means they can be an alternative home for your savings.
How to decide where to save:
What do you want to save for?
How long do you need to save?
Do you need instant access to your money?
If you can leave it and you are worried about the temptation to dip into the money you may be better off opening a savings account, or paying into a fixed-rate bond which will pay a higher rate of interest.
If you decide you want to save using your current account, the best place to start is at the bank where you have your current account.
First things first: shop for a current account online to see what other banks have to offer.
If you are offered a low rate, you may want to compare other current accounts. If you decide to switch you should be protected by the current account switch guarantee.
Find out about the current account switch guarantee
There are places you can put your savings, which will earn a decent rate of interest, but you have to do your research and shop around.
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.
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), but you may need to give some notice before taking your money out and buying and selling shares will involve a cost.
Every basic-rate taxpayer can now earn £1,000 interest without paying tax on it.
These ISAs occasionally pay higher rates than equivalent savings because you don’t pay tax on the money as it grows and it’s free of tax on the way out.
A local credit union or a building society can often offer better savings rates.
Often the largest banks are among the lowest interest-rate payers, but to woo savers many high street banks run promotions – sometimes offering as much as £200 – for opening a new account.
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.
Banks pay customers higher rates to leave their deposits untouched for a set period of time,
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. These are accounts which are savings accounts, but you can only access the higher rate of interest by having a current account with that bank.
High interest bank accounts often come with more strings, and there are sometimes penalties if you do not fulfil the account’s requirements.
For example a monthly fee could end up eating away at your meagre interest earnings because your minimum balance dropped below the threshold.
So 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.