New TSB current account pays 5% interest

TSB has launched a current account that gives you a much better return than most savings accounts. Ed Bowsher looks at how it stacks up against the competition.

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:

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.

Recommended

What Bulb Energy’s collapse means for you
Personal finance

What Bulb Energy’s collapse means for you

Bulb Energy – Britain’s seventh largest energy supplier with 1.7 million customers – has become the biggest casualty of the energy crisis. Saloni Sard…
25 Nov 2021
Is it time to remortgage your home?
Mortgages

Is it time to remortgage your home?

Banks are already starting to prepare for higher interest rates, says Alex Rankine. Should you, too?
23 Nov 2021
Should you take out private health insurance?
Personal finance

Should you take out private health insurance?

As the NHS struggles, more people are paying for private health insurance. But is it worth it?
16 Nov 2021
The Budget brought a short-term reprieve for investors
Budget

The Budget brought a short-term reprieve for investors

The Budget spared investors for now – so make sure you use up all your your allowances.
5 Nov 2021

Most Popular

Inflation forecasts mean interest rates should be on the rise – so why aren’t they?
Investment strategy

Inflation forecasts mean interest rates should be on the rise – so why aren’t they?

With inflation forecast to hit 5% next year, we might expect interest rates to be rising, says Merryn Somerset Webb. But central banks are holding off…
8 Nov 2021
Don’t worry about the global population explosion – it’s unlikely to happen
Investment strategy

Don’t worry about the global population explosion – it’s unlikely to happen

One of the many things we are taught to worry about is the fast-rising global population. But in fact, says Merryn Somerset Webb, the opposite is tru…
15 Nov 2021
Four of the best new investment trust listings
Investment trusts

Four of the best new investment trust listings

Diversify your portfolio and benefit from rising dividends with these four new investment trusts coming to the market soon.
15 Nov 2021