Most savings and current accounts have been paying dismal rates of interest for at least five years now. So we were delighted when Nationwide grabbed the headlines in March by upping the rate on its FlexDirect current account to a heady 5%. Up until then, the rate had been just 2%.
At the time, the retail price index (a measure of inflation) was running at 2.5% for March. So, with a 2% interest rate, FlexDirect account holders had actually been losing money in real terms
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But then more good news followed. TSB, perhaps hoping to ingratiate itself with customers following its public split with Lloyds, trumpeted the arrival of its Current Plus account, also offering 5% interest.Ed Bowsher covered this in detail.
Not only could savers now comfortably beat inflation, but they could choose with whom they did it. Better still, TSB customers only have to deposit £500 a month to win their coveted 5%, compared to the £1,000 a month Nationwide demands.
If you're not keen on the TSB account, Lloyds has its Club Lloyds account which pays 4% if you have a balance of between £4,000 and £5,000.
After these three front-runners, interest rates fall to 3%.
Tesco Bank has launched a current account that pays 3% on balances up to £3,000, and lets you collect Clubcard points on your debit-card spending, at Tesco and elsewhere. It's free if you pay in over £750 a month, otherwise you'll have to pay £5 a month.
For £2 a month, you can earn 3% a year with the Santander 123 account, or you can get the same rate with Bank of Scotland as long as you have a balance of at least £3,000.
Of course, there's more than just interest rates to consider when choosing where to park your cash. Overdrafts, benefits and signing-up rewards are all important too. But to keep things simple, we've made interest rates our focus. We've also excluded children's accounts that tend to offer more generous rates of interest.
One thing you will want to look out for is whether that headline interest rate is for a limited time only. In true Cinderella style, Nationwide's shining 5% morphs into an ugly 1% after the first 12 months. So, you may want to think about switching accounts after the first year.
In the table below, we list the top six current accounts currently on offer ranked by their interest rates. We haven't included Halifax here, because itsReward Accountdoesn't offer interest as such. But it does pay you £5 for every month you pay in £750.
So, that's a quick round-up of the best current accounts for earning interest. We plan to update this article regularly.
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Chris Carter spent three glorious years reading English literature on the beautiful Welsh coast at Aberystwyth University. Graduating in 2005, he left for the University of York to specialise in Renaissance literature for his MA, before returning to his native Twickenham, in southwest London. He joined a Richmond-based recruitment company, where he worked with several clients, including the Queen’s bank, Coutts, as well as the super luxury, Dorchester-owned Coworth Park country house hotel, near Ascot in Berkshire.
Then, in 2011, Chris joined MoneyWeek. Initially working as part of the website production team, Chris soon rose to the lofty heights of wealth editor, overseeing MoneyWeek’s Spending It lifestyle section. Chris travels the globe in pursuit of his work, soaking up the local culture and sampling the very finest in cuisine, hotels and resorts for the magazine’s discerning readership. He also enjoys writing his fortnightly page on collectables, delving into the fascinating world of auctions and art, classic cars, coins, watches, wine and whisky investing.
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