Ditch That Rubbish Account!

If the great rate on your current account or ISA has now disappeared, where do you go next?

The rate tarts among you are in a constant quest to find the most competitive deals on the market. Of course, there's absolutely nothing wrong with that. But the trouble is when it comes to current accounts, we've had the same best buy for ages, and you can only switch to the best once. So what happens if you've already done that and now you're stuck with rubbish rates?

This is exactly what happened to Freckles84 who posted this question about current accounts on our Q&A tool.

Freckles84 asks:

"I've been with Alliance & Leicester for my current accounts for a couple of years so I no longer get the good rates advertised. I've been thinking about switching but all the comparison tables show Alliance & Leicester at the top, but their rates only last a year, and I've already had that. Any other recommendations?

Also, just realised I'm only getting 1.3% on my A&L ISA, anyone know of an account I can manage online with a better rate?"

First of all, thanks to Freckles84 for asking a question that must crop up for many of you. The Alliance & Leicester Premier Direct Account is undoubtedly the market leader if you're looking for a high interest rate on your in-credit balance and you can pay in at least £500 a month. Right now it pays 6.5% AER on balances up to £2,500, fixed for a year (although balances over £2,500 earn a tiny 0.10% variable).

So the A&L account is a great choice, but what do you do if you've already switched to them? Are there any decent alternatives to move on to now?

Freckles84 could try the next best high-interest option - the Abbey Account Preferred In-Credit Rate - which pays 6% on balances up to £2,500, fixed for a year, then 1.5% thereafter. The account must be funded with £1,000 or more each month to get that great rate.

Halifax rewards

In response to Freckles84's question, ThatLindseyGuy says:

"The Halifax Reward Current account to be launched on 9 February will pay a fixed £5 (after basic rate tax) for every month you deposit at least £1,000. It looks like a very good deal for those who don't use an overdraft."

I think ThatLindseyGuy has a good point. The soon-to-be launched Halifax Reward Current Account does indeed pay a flat amount of £5 a month But how does that measure up to A&L's Premier Direct Account and Abbey's Preferred In-Credit Rate Account?

Let's imagine you maintain the optimal balance of £2,500 in your current account throughout the year, in order to get the highest return from the Abbey and A&L accounts:

A&L, once again, looks like the clear winner providing account holders with maximum interest of £162.50 if a balance of £2,500 is maintained for 12 months. Abbey isn't far behind at £150, while Halifax will only manage to pay half that amount.

But crucially Freckles84 doesn't need to keep any money in the Halifax account to benefit from the monthly reward. In other words, as long as £1,000 is paid in every month, it can all be spent but still earn the same £5 reward. But with both the A&L and Abbey accounts, the balance must be kept at £2,500 over the year to earn the maximum interest shown. 

So, to earn a better return, Freckles84 could pay money into the Halifax account, then immediately transfer it out again, into a best buy savings account where it will earn more interest. The total return would then be the £75 (gross) from the Halifax account, plus interest at a best buy savings rate. 

This means that, as long as Freckles84 can find a savings account which pays more than £87.50 (gross) in interest on £2,500 over the year, it would be even more profitable than A&L's account. And to do that the new account would need to pay more than 3.5% (gross). 

Find out more about Halifax's new account in this recent article - Earn £60 A Year From An Empty Current Account.

A quick word on ISAs

The dismal rate now paid on the A&L ISA is also a problem. I don't know whether Freckles84's cash ISA allowance is still available this tax year. But if it is and access to the money is required, Scottish Widows offer 3.60% - including a 1.5% bonus for one year - on their E-Cash ISA. It might be possible to transfer the old A&L ISA over too.

Alternatively, if Freckles84 needs to transfer old ISA cash and is happy to lock the money away for a while, even better rates can be earned with the Fixed Rate Halifax ISA Saver. Rates of between 3.70% and 4.10% are available over terms of one to four years. These returns are the best available in today's low interest environment and are guaranteed for the term. This is a fantastic feature when variable rates are slipping across the board and look unlikely too recover any time soon.

Editor's Note: This article should not be seen as individual advice for Freckles84. We don't know the full financial circumstances and so can only give general information.

The comments above are the opinions of the author only and do not represent specific advice.

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