Top current accounts if you are in credit

Some current accounts pay higher returns than savings accounts.

14:21 21 March 2013

It used to be a golden rule that you should never stash your savings in your current account due to the dismal rates of interest on offer - but now some current accounts pay higher returns than savings accounts.

 

Traditionally, keeping your cash stashed in your current account was a big no-no. Interest rates were either negligibly low - or accounts paid nothing at all. However, recent months have seen the introduction of several new current account deals which pay competitive returns when you are in credit.

As a result, and provided you have already made the most of this year's cash ISA allowance it may be worth considering switching your current account so that any surplus savings you have can earn as much interest as possible.

Here's our round up the top current accounts for credit balances... .

 

High interest on smaller balances

 

If it's a competitive rate of interest you're after, one of the most eye-catching current accounts on offer at the moment is from Nationwide Building Society.

 

Its FlexDirect current account has just been given a re-vamp, and now pays a staggering annual equivalent rate (AER) of 5.00% on credit balances, provided you pay at least £1,000 a month into the account.

However, there are several catches, the most important of which is the fact that this rate is only offered on balances up to £2,500, and for 12 months only. After a year, the AER drops to a less enticing 1.00%.

That said, the 5.00% rate is still well worth taking advantage of, even if it is only for a year, and FlexDirect account holders will also have access to exclusive deals on savings accounts, mortgages, personal loans and credit cards with Nationwide. These include the Select credit card which offers 0.50% cashback and fee-free spending overseas. This account does not have a monthly fee.

Nationwide has also just launched its new FlexPlus account, which pays a lower 3.00%, again only on credit balances of up to £2,500. However, this is a packaged account and comes with a wide range of additional benefits including worldwide travel and mobile phone insurance, breakdown cover in the UK and EU, extended warranty cover, ID theft assistance and worldwide card emergency assistance.

This current account comes at a price, however, as there is a £10 monthly charge - worth it if you will make the most of the perks on offer, but not if you won't use them. You can read more about this new-launch account with Clare Walsh's Focus On.
 
High interest on larger balances

 

If you tend to keep much more than £2,500 in your current account, then you will need an account which pays high returns on bigger balances.

The Santander 123 Current Account could fit the bill, as it pays an impressive 3.00% AER on balances between £3,000 and £20,000.

If you have a smaller balance, then you will earn a lower rate of interest. For example, those with balances between £2,000 and £2,999.99 earn 2.00%, while you will earn 1.00% if your balance is between £1,000 and £1,999.99.

However, whatever the size of your balance, there are other advantages which come with the Santander account. Providing you pay your household bills by direct debit from the account, you will earn cashback of between 1.00% and 3.00% on this spending which could provide a useful financial boost to those with substantial outgoings.

On the downside, however, this account has a £2 monthly fee.

Lloyds TSB also offers tiered rates of interest on its Vantage - a facility which can be added to any Classic or Added Value current account free of charge. Interest rates are tiered, so you earn 1.50% AER on balances from £1 to £999.99, 2.00AER on balances from £1,000 to £2,999.99 and 3.00% on balances of between £3,000 and £5,000.

 

Other alternatives

 

Several other accounts ensure you'll end up quids in at the end of the year, although they don't necessarily reward you for being in credit.

For example, rather than paying a high rate of interest on your savings, the Halifax Reward Current Account pays you £5 every month you pay in at least £1,000, meaning at the end of they year, you can earn a maximum of £60. There is a £50 switching incentive too when you move your account from another provider, so you should end up with £110 after the first year.

However, bear in mind that this account won't suit those who regularly slip into the red, as the overdraft charges are steep. You will be charged daily fees of £1 for arranged credit of up to £2,500, £2 for arranged credit of more than that amount and £5 for unauthorised debts. So this account is only worth considering if you only go overdrawn very rarely. Charges are also set to change too, as Rachel Wait details in her article.

Another option worth considering is First Direct's 1st account, particularly if good customer service is among your top priorities. Although the 1st account doesn't pay interest on credit balances, you'll get a generous £100 cashback when you switch to First Direct, and the bank will give you an additional £100 if you don't like the account and want to leave in the first 12 months.

You must pay in at least £1,500 a month to qualify for the 1st account, although from April 1 this will reduce to £1,000 for new customers and from 1 May for existing customers.

The 1st Account also offers a £250 fee-free overdraft and gives you access to First Direct's regular saver account which pays 6.00% AER for 12 months if you pay in between £25 and £300 a month.

 

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.