If you’re looking to put cash into savings to earn a top rate in interest, your current account is unlikely to be the place to find the best savings rates, with many paying little or nothing.
But could this rate increase from Starling be the start of a current account interest rate war as banks do more to bring in new customers and retain existing ones?
Starling Bank is boosting the rate on current account balances to 3.25% from 0.05%, meaning current account holders will be able to earn interest without having to shift cash into a savings account, which on the Starling app is known as ‘spaces’.
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Though this rate does not beat the top rate on the best easy access savings accounts, where you can currently earn as much as 5.1% with Beehive Money, it does allow you to earn interest on your day to day spending money in your current account.
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Banks have been putting up the rates on their savings accounts for easy access accounts, fixed rate savings, following interest rate hikes from the Bank of England’s base rate and pressure from the regular to give savers a better deal when it comes to savings products.
Starling bank recently increased the rate on its one year fixed savings account to 5.25% from 3.25%.
“Most banks with competitive interest rates require customers to move money into a separate account or pay a subscription fee,” said John Mountain, interim CEO at Starling Bank. “This friction means that many people won’t get around to taking action and so miss out on the interest on their main balance.”
Mountain has called on other banks to do the same - while rates have become a talking point for savings accounts, current accounts are not.
And while banks are gaining customers by offering bank switching bonuses, many will switch for better rates. Service or linked savings accounts as well as the free cash incentive. Some banks are paying up to £200 for you to move to them, with the most recent offer from Nationwide paying a £200 to switch, which is also paying a linked 8% rate on a regular saver account.
We look at who we will benefit from Starling's new current account rate
What you need to know about Starling’s new rate
The new rate will be payable on balances of up to £5,000 from 1 October 2023, and it will be available to new and existing customers. For joint accounts the balance is £10,000. Interest will be paid monthly.
The £5,000 is inclusive of money held in ‘Spaces’ and children’s debit cards connected to adult accounts.
The new rate will be automatically applied to accounts. If you’re a Starling Bank customer but don’t want to earn interest you can opt out of it in-app.
Savings rates on the rise
The FCA called banks out for not passing the BoE’s rate hikes onto savers, warning they would face “robust” action if they failed to improve their offerings.
Competition in the savings market has heated up since. Currently you can earn 8% with Nationwide’s regular saver. NS&I is offering the best one-year fixed rate with 6.20% interest, while the best easy access account currently offers 5.10%.
Starling Bank’s rate falls behind these, but it does offer the convenience of not having to move your money around. So if your money is currently languishing in a current account paying no interest and you don’t want to open up a savings account, it may be worth considering transferring your money.
