Cash in with the “current account circuit”

Ruth Jackson explains how the juggling money between high-interest current accounts, could earn you an average 3% interest on up to £17,000 of money, retaining instant access.

If you want a decent return on your savings these days, you need to put your money in a current account rather than a traditional savings account. Interest rates on current accounts are as much as five times higher than those offered by the average savings account. Low maximum balances and rules on direct debits can often put people off using them. However, if you set up a "current account circuit", you could earn an average 3% interest on up to £17,000 of money, retaining instant access so you can move it if a better rate comes along.

A current account circuit is where you open several current accounts and have standing orders moving money around all of them, so you can easily meet each account's paying-in requirements and maximise each account's balance limits. The hardest part of this arrangement is probably getting started, as all of the form filling-in to open the accounts can be daunting. But once you've done it, the rest is relatively straightforward.

How many accounts you open will depend on how much you have to deposit (you will obviously want to prioritise the accounts that pay the highest rates on the most money). Nationwide pays 5% interest on up to £2,500, Tesco Bank pays 3% on £3,000, TSB pays 3% on £1,500, Bank of Scotland will pay 2% on balances up to £5,000 (from 11 June), and Lloyds pays 2% on balances up to £5,000. Go with the Nationwide account first (note that the minimum monthly deposit is £1,000), and then put £3,000 into the Tesco account, and so on until you've deposited all your cash.

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Now you need to set up standing orders. If you set up all five accounts, then the maximum monthly funding requirement is £1,500 (for Lloyds), so the easiest thing is to bounce that amount between all the accounts. Simply set up a standing order to move £1,500 from account to account once a month.

Next, you need to check if any of the accounts require you to have direct debits going out of them in order to get the bumper interest rate. In this case, Lloyds and Bank of Scotland require two direct debits and Tesco Bank three. You can move existing direct debits to cover this, or you could open a savings account that accepts payments by direct debit Tesco's internet saver and the Post Office's online saver both do. Alternatively, you could set up charity direct debits for as little as £1 a month.Manage all this, and you will have found a home for up to £17,000, earning a good amount of interest. This set-up is probably the best possible home for cash savings at the moment. Just make a note in your diary to reassess the situation in 12 months' time, as the 5% rate on the Nationwide account runs out then, and others may have dropped their rates.

You can also make a £230 immediate gain if you take advantage of switching bonuses. You will receive £130 for the TSB account if you open it via; just make sure you read the small print, as this means a full switch whichever account you do the switch from will be closed and the direct debits moved to the TSB account. You can also get £100 if you get a friend who has a current account with Nationwide to send you a friend's link to open your account. This doesn't require a full switch. Plus, once you have your Nationwide account, you can then earn £100 for every friend who opens an account on your recommendation. Just fill inthe form, which you can find in your online banking page.

If that all sounds like too much effort, you can still earn up to 5% interest on £4,000 just by opening the Nationwide and TSB accounts. These two don't have any requirement to have active direct debits in place, so you can just set up one standing order from each account to the other and bounce £1,000 between the accounts each month to meet the minimum funding requirements.

In the news this week

Financial advisers are starting to cast their nets beyond the very wealthy when it comes to inheritance tax (IHT) shelters, according to a report by researcher Intelligent Partnership (IP), says Vanessa Houlder in the Financial Times. IP focused on investments which make use of business property relief (BPR), because clients only have to survive two years after bequeathing them in order for the investments to be passed on tax-free, instead of the usual seven years for gifts. There are 52 tax-efficient products open to new investors which use BPR, around half of which invest in shares on Aim, the London Stock Exchange's board for smaller companies, many of which can be exempt from IHT .

People who are looking at a potential IHT bill of £15,000-£40,000 and who would have previously been deterred from BPR investments by the higher minimum amounts are now able to "invest an amount which just offsets their potential IHT liability". However, 17% of advisers never recommend BPR.There are also concerns that the valuations of BPR-eligible companies may be being driven up by the tax breaks, creating a potential bubble in Aim shares.

It can be expensive to send money abroad, but Revolut, an innovative payments app, now allows users to transfer up to £5,000 overseas for free, and charges 0.5% for any sum over this amount, says Aime Williams in the Financial Times. Traditionally, consumers wanting to transfer funds to overseas bank accounts are charged a "host of transaction fees" and offered a lousy exchange rate. For example, last year, FT Money found that Barclays, Lloyds and Natwest were charging their customers "around 5% more for euros than their own traders would pay for the currency on the interbank market".

Viewber, a new service launched last month, allows people to earn extra cash by playing at being an estate agent, says the Mail Online. Register on their website and you will be assigned a local property and a time to meet prospective buyers. You'll only get £10-£20 per viewing, plus a travel allowance, but it's not a bad way to earn a bit of "pin money".

Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings and credit cards to pensions, property and pet insurance. 

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping among many other titles both online and offline.