With interest, switching bonuses, cashback and free overdrafts, current accounts have never looked so good.
The Big Four banks – Barclays, HSBC, Lloyds Banking Group (Lloyds Bank, Halifax and Bank of Scotland) and Royal Bank of Scotland Group (RBS, NatWest and Ulster Bank) – account for a whopping 77% of the UK's current accounts. And yet many of their current accounts are beaten by the 'smaller' competition.
The Competition and Markets Authority has now proposed an investigation into the competitiveness of the banking sector, but you can take matters into your hands now by switching.
Despite the introduction of the Seven-Day Switch in September, which guarantees current account switches will be made within seven working days and any problems will be fixed by the bank you're switching to, just 1% of customers switched in the first six months of this year.
But the Seven-Day Switch has led to banks and building societies ramping up their efforts to attract and keep customers.
Meanwhile, high street giants Marks & Spencer and Tesco have launched accounts through their banking brands.
So with competiton fierce and the switching guarantee, there's never been a better and easier time to switch your current account. But with so much choice it can be hard to decide which to go for.
Here are our top picks.
Fed up with your bank? Compare current accounts
Top accounts for interest
As the rates on savings accounts have nosedived, current accounts have become the top low-risk place to earn a decent return on cash.
Nationwide’s FlexDirect pays a top rate of 5% AER on balances up to £2,500 for 12 months. After that it drops down to 1%. You need to pay in £1,000 a month to qualify for the rate.
The TSB Classic Plus account also offers a market leading 5% AER but only on balances up to £2,000. However, you only need to fund the account with £500 a month to start receiving interest.
[SPOTLIGHT]If you have a slightly larger pot then there’s the Lloyds Bank Club Lloyds Account. It pays 4% on balances between £4,000 and £5,000. 1% is paid on balances from £1 or 2% on balances from £2,000. To earn interest you’ll need to have two different direct debits set up on the account and to avoid the £5 fee you’ll need to pay in £1,500 a month.
For those with a much larger balance there’s the Santander 123 Current Account. It pays 3% on balance from £3,000 up to £20,000. On smaller balances starting from £1,000 it will pay 1% while pots amounting to £2,000 will attract 2%. However, you’ll need to deposit £500 each month, pay a £2 monthly fee and set up two direct debits on the account in order to receive interest.
Alternatively there’s the brand new Tesco Bank Current Account. It offers 3% gross interest on balances up to £3,000. You need to fund it with £750 a month to avoid the £5 monthly fee though.
Top accounts for introductory offers
If you haven’t got any cash saved up that could benefit from a high interest account like the ones mentioned above you’re better off going for one that comes with a switching bonus.
At the moment Halifax, First Direct, the Co-operative Bank and M&S are all offering between £100-£150 to new customers.
Halifax will pay the incentive to anyone that switches to its Current Account, Reward Current Account or Ultimate Reward Current Account. Go for the Reward Account and you’ll also get £5 a month, providing you pay in £750 a month, set up two direct debits and stay in credit.
First Direct pays the bonus to new customers that switch to its 1st Account. But you’ll need to fund the account with at least £1,000 a month to avoid a £10 monthly fee – if you don’t your bonus will soon be wiped out.
Elsewhere, the Co-operative Bank is offering to pay the cash to those who switch to either its Current Account Plus, Standard Current Account or smile Current Account. The bank will also make a £25 donation to charity of your choice when you join. To qualify for the offer you’ll need to deposit £800 into the account within 31 days of opening it.
M&S Bank, unlike its rivals, offers the bonus in gift cards. You can get a £100 M&S gift card with the fee-free Current Account it launched last month or a £150 gift card with the Premium Current Account, which costs £10 a month.
Top accounts for cashback
A growing number of banks are starting to offer cashback on purchases made using current account debit cards.
Halifax operates a scheme called Cashback Extras, Lloyds Bank has Everyday Offers while NatWest and RBS offer account holders the chance to use Cashback Plus. They all require current account customers to bank online and offer cashback (up to 15% with Halifax and Lloyds or 1% with NatWest/RBS) when you follow links to shop at certain retailers.
Alternatively the Santander 123 Current Account offers up to 3% cashback on household bills. You’ll get 1% back on water and Council Tax bills as well as Santander mortgage repayments (of up to £1,000), 2% on gas and electricity bills and 3% on mobile, home phone, broadband and paid for TV packages.
Top accounts for overdrafts
If you find you stray into the red each month you might benefit from a current account with a cheap or fee-free overdraft.
The Nationwide FlexDirect offers a leading 12-month fee-free overdraft. The Santander Everyday Current Account and 123 Current Account offer four-month interest free while the Nationwide FlexAccount offers three.
First Direct offers a £500 automatic overdraft with its 1st Account where the first £250 is fee free. Similarly both the M&S Bank current accounts offer a £500 overdraft, but this time the first £100 is interest-free. Both providers charge 15.9% for borrowing over their set limits.
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