New TSB current account pays 5% interest

TSB has launched a very attractive new current account, which pays an outstanding 5% interest rate. That's way better than the vast majority of savings accounts.

TSB was relaunched as an independent brand last September, and it's expected to float on the stock market later this year. So it's no great surprise that TSB wants to make a splash with a market-beating account.

Let's look at the account in a bit more detail:

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The account is called TSB Plus and it's a fee-free account. In other words, there's no monthly charge. In fact, you won't have to pay any fees as long as you stay in credit and comply with the terms and conditions for the account.

The 5% interest rate applies to any balance up to £2,000. To get the interest, you must pay in at least £500 a month, and sign up for paperless statements.

Interestingly, if you open two Plus accounts, you'll be able to earn 5% interest on both accounts. So you could deposit £4,000 in total and earn £200 in interest each year.

What about the competition?

Well, Nationwide's Flex Direct account also has a 5% interest rate, and that rate applies to balances up to £2,500. However, the 5% rate only lasts for a year. By contrast, TSB's 5% rate should last for the foreseeable future.

If you want to earn interest on much larger balances, take a look at the Santander 123 account. It pays out 3% interest on all balances between £3,000 and £20,000. You do have to pay a £2 monthly fee, but given that you could earn as much £600 in interest over a year, it's a good deal for many folk.

The Santander account also gives you cashback on some bills 3% on phone, internet and TV.

I also like the Halifax Reward current account. It's especially attractive if you normally have a small balance, as it pays out £5 every month even if you only have £50 in the account. Be careful though: you'll lose out if you let your account slip into the red. You must also pay in at least £750 a month.

Halifax's other plus point is a £100 welcome bonus when you join.

You can also get £100 welcome bonuses if you switch to First Direct or Co-op Bank. First Direct also has an outstanding reputation for customer service, so if that's what matters most to you, go for First Direct rather than rivals who pay interest.

Account

Credit interest rate

Welcome bonus

Notes

TSB Plus account

5% up to £2000NoneCan open two accounts, giving you 5% a total £4000 balance

Santander 123 account

3% for balances between £3000 and £20,000None3% cashback on phone/TV, 2% on energy, 1% on utilities and Santander mortgage

Halifax Reward account

£5 a month£100

Co-op standard current account

None£100 + £25 for charity

Nationwide FlexDirect account

5% up to £2500None5% rate only applies for first year

First Direct 1st Account

None£100

You may think it's not worth switching due to the hassle involved. However, it should now be much easier to switch current account these days thanks to a seven-day switching guarantee that was introduced last September. That's the theory anyway.

On a personal note, my wife and I opened a Santander 123 account about a year ago. We've very much enjoyed the substantial interest payments, but sadly, the customer service hasn't been perfect.

Overdrafts

If you expect to go into the red on a regular basis, the accounts I've looked at may not be the best for you. All the accounts I've highlighted are for folk who are normally in the black.

The great thing is that these accounts enable you to get a better return on your money. In fact, at least four of them give you a much better return than most savings accounts.