Current account Guides

High interest current accounts

Writes Hazel Cottrell hazel@consumerchoices.co.uk

At the moment you can get a better interest rate on your current account deposits than your savings. But how do you choose the best high-interest current account? (Updated 2/7/09)

With the rate on most savings accounts still depressingly low, many people are looking for new ways to get a return on their cash. One of the increasingly popular choices is to keep your cash in a high-interest current account.

In this guide we look at what high interest current accounts offer and how to choose the most suitable for you.

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• What are high interest current accounts?
• What are the advantages of high interest current accounts?
• What are the disadvantages of high interest current accounts?
• What’s available?
• Recommendation

What are high interest current accounts?

High interest current accounts are pretty much exactly what they say on the tin – current accounts that offer you a decent return on your cash in credit. While current accounts have typically offered paltry levels of interest, this new breed of accounts breaks the mould and actually allows you to earn more interest than most savings accounts.

For the purposes of this article, packaged accounts, many of which offer a high interest rate in exchange for a monthly fee, are excluded. Unless you are going to use all the benefits and services they are very rarely worth it and if you are switching to get a higher return, you don’t want to have to pay for it!

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What are the advantages of high interest current accounts?

The obvious, and crucial, advantage of high interest current accounts is the fact that they pay a high rate of interest. Many will give you this rate on balances up to £2,500 and at present, the best buy high interest current account beats the best buy instant access savings account hands down, paying nearly double the rate of interest.

Whether you use high interest current accounts to stash some of your savings, or simply as a home for your day-to-day cash, it would be foolish not to make the most of these great rates.

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What are the disadvantages of high interest current accounts?

There are three disadvantages, or rather conditions, of high interest current accounts that you should be aware of:

1. Generally, to be eligible for the high interest rates, you will be required to pay in a certain amount each month. Most people will do this by having their salary paid into the account. Once you have paid the money in, you are free to withdraw it whenever you like, so it doesn’t lock up your cash and shouldn’t be a problem. However, you should check the requirements before applying to ensure you can meet them.
2. Typically the high interest rate you enjoy with these accounts will plummet after one year. It’s great to make the most of it while it lasts but you will need to be prepared to switch accounts again at the end of the year to get another high rate.
3. High interest current accounts are designed for those in credit and so the overdraft rates are not usually that competitive.

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What’s available?

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Recommendation

When choosing a high-interest current account, the main thing you are looking for is the highest rate of interest on as large a balance as possible.

However, there are other things you might want to consider:

• Do you need online banking? If you want to manage your account online, check that your new provider will allow you to do this. Some banks also offer mobile banking.
• Will you need a branch? Some accounts are online-only so take this into account when choosing. If you do need a branch you might also want to check where your local branch is, and its opening hours.
• Do you spend a lot of time abroad? If you use your card outside of the UK a lot, make sure you’re aware of the charges you’ll face for using your card abroad.
• Statements - Will you receive your statements monthly, or will they be online only? If this is important to you, make sure you know how your account works before signing up.
• Authorised and unauthorised overdraft fees - If you spend a lot of time in the red, make sure you know what this will cost you so that any financial difficulties you might face don’t spiral out of control.

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