Earn 5% on your current account
You can save up to 5% on your current account, but you will need to jump through hoops, says Harvey Jones
How to Earn Money on Your Current Account
Traditionally, most of us didn't expect to earn a bean on our current accounts. Or rather, we earned interest of 0.1%, which amounted to the same thing. We expected to get a far more generous rate of interest on our savings. But in recent years, those assumptions have been thrown into reverse. The average easy access account now pays a meagre 0.62%. Many older 'dormant' accounts pay just 0.1%.
By contrast, a number of current accounts now pay eye-catching interest rates of up to 5%. Naturally, they come with a few catches.
Challenger bank TSB recently launched its Plus account that pays 5%, but only on balances up to £2,000. You also have to pay in at least £500 each month. Even if you have the full balance, you will earn interest of just £100 a year.
The Nationwide FlexDirect pays 5% on a slightly larger maximum balance of £2,500, but for a limited period of just 12 months. After that, you get just 1%. You also have to pay in £1,000 a month. The new seven-day switching rule has made it easier to chop and change current accounts, but switching to these accounts still seems a lot of effort for little reward.
Lloyds has just launched its new Club account paying an interest rate of 4% on balances up to £5,000. This one comes with a whole raft of catches. To get that 4% interest rate, you must use this as your main current account, pay in £1,500 each month, and set up at least two direct debits. You will only get that 4% headline rate if your balance is between £4,000 and £5,000. If you have a lower balance, you will get less interest: 1% on balances between £1,000 and £2,000, rising to 2% on balances between £2,000 and £4,000.
Talk about fiddly!
If you take out this account, however, you do qualify for a new Monthly Saver account from Lloyds, which pays 4% on savings up to £400 a month. Couples who take out a current account each, with the full £5,000 balance, and one joint savings account, could earn total interest of £588 a year. Now that may well be worth the effort. Be warned, however, there are hefty charges for those who dip into the red.
Here's another one to consider
The popular Santander 123 account pays 3% on balances between £3,000 and £20,000, plus cashback on household bills, mobile phone and broadband costs, and so on. Inevitably, this also comes with a string of catches.
You need to maintain a minimum balance of £1,000, pay in at least £500 a month, and set up two direct debits. There's also a £2 monthly fee.
So yes, you can earn up to 5% on your current account, if you are ready to jump through a lot of hoops.
Given today's dismal savings rates, many people will be willing to do just that.