One in three savers missing out on free money

Hundreds of savers are missing out on interest payments by choosing the wrong current account.

A third of people in the UK are missing out on interest payments from their current account, new research shows.

This is despite having an average of £130 billion left in UK accounts before payday.

Of those people with in-credit balances in their current account before payday, just under 50% are using an account which pays no interest.

Lost interest

Savers are getting a raw deal at the moment due to the Government’s Funding for Lending scheme (FLS) which has left rates averaging the 2% mark.

But several current accounts pay interest on credit balances and the rates are competitive.

As the savings market is proving so unreliable, a current account is now looking like a viable option to pocket some extra cash. The data shows that people do have money left over in their accounts but as 80% of accounts don't pay any interest customers are missing out on extra cash.

The best paying current accounts

Many people put off switching their current account because of the time it takes. But if you're going to be able to earn around 5% interest with a new account then it's worth putting an hour or two aside to do this. Our guide  - How to switch current accounts - gives step-by-step instructions to the process.

So which accounts should you be looking at?

Nationwide

Nationwide is paying the highest amount of interest on a current account right now with 5% available on balances up to £2,500 with its FlexDirect.

This is open to both new and existing customers and there are also no overdraft charges for the first 12 months. But after the first year the interest rate will drop to 1% and charges will be applied of 50p per day on arranged overdrafts of more than £10.

Santander

The Santander 123 account pays tiered levels of interest on in-credit balances. It pays 1% on balances of £1,000 or more, 2% on balances above £3,000 and 3% for balances between £2,000 and £20,000.

Although this is less than the Nationwide account, it pays interest on a higher sum of money so would be a good option if you’ve got a lump sum you’re looking to make some extra income on.

It also pays cashback on household spending and you can get 1% for water, council tax and Santander mortgage payments, 2% on gas and electricity direct debits and 3% on communication bills.

The downside with this account is you’ll have to pay £24 a year to have it.

Lloyds Vantage

Another account which pays interest on credit balances is the Lloyds Vantage current account. It pays up to 4% and again beats almost all savings accounts on the market.

On balances between £1 and £999 you can get 1.5% interest and if this moves to between £1,000 and £2,999 you can earn 2%. If you are able to maintain a balance of £3,000 up to £4,999 you are rewarded with 3%, while if it's betwen £5,000 and £6,000 it rises to 4%.

You'll need to deposit at least £1,000 a month and keep the account out of the red in order to earn up to 3% and to get access to the top rate of 4% you will also have to set up at least two direct debits.

Other options

If you’re looking for some extra income and fed up with the dismal rates on offer from the banks, you could try your hand at peer-to-peer lending.

It’s a good way to make some extra money as it effectively works by cutting out the middle man – the bank – and allowing individuals to lend to each other and set their own interest rates. As average rates are around 6% you’ll get a much better deal than you would from the high street banks.

However, although these will be regulated by the Financial Services Compensation Scheme (FSCS) soon, they’re not at the moment so if a company goes bust you don’t have as much protection.

To combat this, most of these companies have an emergency fund to pay out if any loans are defaulted on so the lender shouldn’t ever be out of pocket. Read What is peer-to-peer (P2P) lending? for more.

More on current accounts

Get cashback with your current account

Nationwide launches new FlexPlus packaged current account

What is peer-to-peer (P2P) lending?

The Post Office launches its own bank account

First Direct cuts 1st Account minimum monthly deposit