There are bank accounts to suit everybody, but most of you have got the wrong ones! Take a look at these accounts to see which will earn you, or save you, the most in interest.
A relative of mine switched current accounts recently. He neglected to consult me, and got an account paying 4.25% interest. I thought: "Hmm, that could be worse." Then he told me it was the Nationwide Flexaccount. I hadn't heard of it, which was not a good sign, as I work for a website with the slogan: Independent Financial Comparison. It turns out that the sneaky devils only pay 4.25% on the first £3,000, but just 0.25% on any higher balances. As he has £50,000 in his current account, that means he'll earn £196 interest after tax this year, when he should earn thousands!
With this in mind, I trawled the Moneyfacts database to find the best current accounts. They can be surprisingly difficult to compare, as seemingly great accounts can be ruined by just one line of small print. (They're all the same. What a bunch of bankers!)
It didn't take much searching though to find that the best current account interest rate right now is Alliance & Leicester's Premier Direct Current Account at 6.1%. This is fixed for a year on balances up to £2,500, although it pays a paltry 0.1% on excess balances.
You might be able to blag a £250+ interest free overdraft for a year with this account. Afterwards, the overdraft interest rate is variable (so it can go up and down), starting at 5.9%. You have to credit your account with £500 each month to keep the great interest rate. A&L also throws in a bonus: if you become a customer and recommend a friend who credits his or her account with £500 within eight weeks, you get £50.
An alternative to the Alliance & Leicester account is the Abbey current account. 2.5% interest is paid each month, which isn't great. However, if you stay with them for twelve months, the interest paid on balances up to £1,000 is topped up to 6%. You must pay in a salary of at least £1,000 per month.
The Coventry Building Society account pays 5.35% interest and is guaranteed to track the Bank of England base rate +0.6% for at least a year. The maximum investment is a healthy £250,000 and you get an interest free overdraft of £250. You have to deposit at least £1,000 each month. This is the account I recommended to my relative, by the way, which means he'll get more than £2,000 interest per year after tax, rather than £200!
Best Current Accounts
Credit balance | Excess interest rate | Overdraft promotion | Overdraft after promotion | Minimum monthly deposit | |
|---|---|---|---|---|---|
Alliance & Leicester | 6.1%AER for a year | 0.1% | 0% for a year on £250+ | 5.9% EAR variable | £500 |
Abbey | Interest paid is topped | 2.5% | N/A | 16.9% | £1,000 |
Coventry BS | 5.35%AER tracking the base rate for a year up to £250k | N/A | N/A | £250 interest free overdraft | £1,000 |
N/A | 0.1% | £500 interest free buffer | 9.9% on agreed overdrafts over £500 | £1,500 | |
N/A | 3.75% | £100 | 11.8% on agreed overdrafts over £100 | N/A |
If you live on an overdraft, take a look at the Citibank Sterling Account, which has a £500 interest free buffer. Any agreed overdraft on top of this is charged interest at a competitive 9.9%. However, you need to pay in a salary of £1,500 each month. Also, the credit interest is a nominal 0.1%. It does come with a free iPod nano if you set up at least two direct debits or standing orders for six months, but you shouldn't choose an account because of the gimmicks!
If you can't pay in £1,500 per month and you can't get a £250 interest free buffer with Alliance & Leicester, try cahoot, with which you could get a £100 interest free buffer. It pays a fair 3.75% credit interest. You need to be at least 21 to get this account.
I hope this summary includes a current account suitable for almost everyone!
Compare current accounts through The Fool.