We tell you why your current account could be a better place for your banking needs than a savings account or credit card - while saving you money at the same time!
When was the last time you switched your current account? Chances are, it's probably been a while. I for one have stuck with the same account since starting university, and so far it has served me pretty well.
Today, however, current accounts are much more than just a vehicle to pay your wages into. You can now use them to save and borrow, while also serving your day-to-day banking needs.
And, as Neil Faulkner highlighted last week, with more and more savings rates undergoing a cull, some current accounts are quickly overtaking savings accounts as the best place to stash your cash for a good return. With the base rate slashed to 2% just last week, perhaps it's time to get a tad more creative with your savings.
Here are some of the accounts available at the moment with good in-credit interest rates:
Current Account and Provider | In Credit Rate | Overdraft Interest Rate (EAR) | Minimum Funding Requirements |
|---|---|---|---|
6.5% on balances up to £2,500 for 12 months, 1% below Bank of England base rate thereafter. | 0% | £500 per month | |
6% on balances up to £2,500 for 12 months (amount subject to status), 2% thereafter. | 19.9% | £1,000 per month | |
Coventry BS Coventry First Current Account | 3.6% on balances up to £250,000, 2.85% thereafter. | £250 interest free overdraft. Up to £1,000 by arrangement (£5 monthly fee applies to amounts above £250) | £1,000 per month |
As you can see from the table, these current account rates knock the socks off most savings accounts.
For example, Alliance and Leicester's Premier Direct account offers a market leading 6.5% for the first 12 months on balances up to £2,500. Depending on when you pay your bills each month, this could prove a nice little earner for your cash.
Things get even better if you, or perhaps your son or daughter is aged between 16 - 20, as its Premier 21 current account offers a rate-busting 8% AER on balances up to £1,000. This is a great account if you or your child want to earn a little extra on your wages, Education Maintenance Allowance (EMA), or even pocket money!
Alliance and Leicester's sister bank Abbey has a similar deal, and pays 6% interest on balances up to £2,500 on its Preferred In-Credit current account.
For those put off by the limits imposed by these high paying accounts, the Coventry BS First current account pays a lesser 3.6% AER, but on balances up to £250,000. The account includes a 0.85% bonus for the first year, but even after that, you'll still earn 2.85% AER.
Roaming in the red
If, on the other hand you use your overdraft on a regular basis, these mouthwatering rates are unlikely to get your wallets salivating. However, there is light at the end of this current account tunnel, and many banks now offer accounts with low overdraft interest rates for those who regularly have negative balances.
Here are the overdraft champions:
Current Account and Provider | Overdraft Interest Rate (EAR) | In-credit rate | Minimum Funding Requirements |
|---|---|---|---|
0% for 12 months on overdrafts up to £2,500. | 6.5% | £500 per month | |
Abbey Preferred Overdraft Current Account | 0% for 12 months on agreed overdrafts (subject to status). | 0.1% | £1,000 per month |
Norwich and Peterborough BS | 0% on agreed overdrafts for 6 months. 9.74% EAR thereafter. | 2.02% | £500 per month (£1,500 per month required if you want to qualify for the in-credit rate) |
As you can see, Alliance and Leicester also comes up trumps in terms of overdraft rates, and if your account is usually more in the red than in the black, they will offer you 0% for 12 months on overdrafts up to £2,500.
Alternatively, Abbey's Preferred Overdraft Rate Bank Account also gives you 0% on your overdraft for the first year, although if you manage to pay it off, you'll only get 0.1% AER on credit balances.
Abbey actually offers its customers three options when choosing a current account. You can opt for the in-credit or overdraft rates listed above. Or, if none of that appeals, you can even choose a £100 bonus.
Giving credit to your current account
And finally, if the thought of switching your bank account is all too much this festive season, why not give your existing account a much-needed cash injection instead?
Providing a twist to the traditional balance transfer, all MBNA credit cards also allow you to move cash from your credit card into your bank account, as well as regular balance transfers.
This means you could clear your overdraft using your credit card, instantly reducing the interest you pay, without the hassle of switching current accounts.
The Virgin Money MasterCard is the market leader in this department, and currently offers 0% on balance and money transfers for a mighty 16 months (a 2.98% fee applies).
However you manage your money, it's important to take into account the different options available to you. Some, like saving in a current account may seem a tad incongruous, but could give you some nice returns. Others, such as getting a better overdraft rate, make sense however you look at them, and will save you a packet in the long run.
Switching current accounts may seem like more hassle than it's worth, especially at this time of year. However, depending on which side of the fence you sit, the sooner you act, the more you could save or earn - all of which will hopefully help you get your finances in better order for the new year.
More: 6.5% Fixed Savings Rate -- With Easy Access / Get Free Cash From Your Current Account!