Savers can place a lot of the blame at the door of the Funding for Lending Scheme. This was launched in August last year to encourage banks and building societies to lend more in loans and mortgages by giving them access to cheap funding.
Consequently they no longer rely so heavily on deposits from savers to fund mortgages, which, in turn, means they’re not fighting so fiercely for our custom.
This combined with stubbornly high inflation, which remained at 2.70% in December, is leaving savers with a bad taste in their mouths.
But, rather than giving up, this means is we need to get more creative about where to stash our savings – and one increasingly appealing option is actually your current account.
Santander 123 Account
One of the most innovative current accounts on the market is Santander's 123 account. It allows customers to earn cashback on direct debits linked to the account and also pays a competitive rate of in-credit interest.
How much cashback you earn depends on the type of bill you're paying. Your water bill, Council Tax and mortgage (if it's with Santander) will earn you 1.00%. You'll earn 2.00% cashback on your gas and electricity bills and 3.00% on your mobile phone, landline, broadband and TV package.
To give you an example of how much cashback you could earn, if you paid £100 a month for Council Tax, £80 for your water bills, £100 for gas and electricity, £900 for your mortgage and £90 on your TV package, broadband and mobile, you would earn £184 cashback over a year.
Providing you pay £1,000 or more into your account each month, you will also earn interest on your balance. You will earn an annual equivalent rate (AER) of 1.00% on balances between £1,000 and £1,999.99, 2.00% AER between £2,000 and £2,999.99 and 3.00% AER above £3,000 (up to a maximum of £20,000).
If you moved your savings into the account and maintained an average balance of £5,000 each month, you'd receive £148 in interest (before tax) over a year.
There is one small catch with the account – a £2 monthly fee. But even so, the above example would still give you a total of £308 before tax.
By comparison, if you had £5,000 in the West Bromwich WeBSave Plus 3 account, paying a the top AER of 2.30%, you'd only receive £115 before tax. And even this rate is set to fall from February 8.
If you do choose the Santander 123 account, you will need to pay in at least £500 a month and set up a minimum of two direct debits.
If you're using this account for your savings, you're unlikely to need an overdraft. But it's worth noting there is a free overdraft for the first three months. After this, you'll be charged £1 a day, capped at £20 a month, assuming your overdraft is authorised.
Lloyds TSB Classic Account with Vantage
The Lloyds Classic Account with Vantage pays interest on balances in credit and interest rates are tiered.
You can earn 1.50% AER on balances from £1 to £999.99, 2.00% AER on £1,000 to £2,999.99 and 3.00% AER on balances between £3,000 and £5,000.
So, as with the Santander account, if you kept £5,000 in your account, you'd earn £148 in interest over a year. Only this time, there's no cashback incentive.
There is no monthly fee with the Lloyds account but you will need to pay in at least £1,000 a month.
If you use the overdraft facility, you will be charged an annual percentage rate (APR) of 19.94% on anything over £10.
Halifax Reward Account
With the Halifax Reward account you don't receive interest on your balance, but instead you receive a £5 monthly 'reward' providing you pay £1,000 or more into your account.
In addition, currently you will receive £100 for switching to the account, so in the first year you could earn a tidy sum of £160.
You can also take advantage of a free overdraft for the first year. After this, you will be charged £1 a day on overdrafts up to £1,999.99, £2 a day on overdrafts between £2,000 and £2,999.99 and £3 a day on overdrafts of more than £3,000.
This is assuming your overdraft is authorised. If it's not, you'll be charged a fee of £5 a day.
A few more options
If you switch to First Direct’s 1st Account you’ll receive £100 cashback.
Although the account doesn't pay interest on balances in credit, First Direct is renowned for its good customer service. The account also comes with a £250 free overdraft buffer, but if you go over it, the annual interest rate is 15.9%.
One condition of the account is that you pay in at least £1,500 a month. But once you are up and running, you will have access to the bank’s Regular Saver account paying a handsome 8.00% AER.
M&S Bank launched a current account last autumn. Its Premium Account allows customers to earn loyalty points whenever they use their debit card and these are converted into M&S vouchers. You will also receive £40 worth of vouchers every year, as well as quarterly offers and vouchers worth £45 and drinks vouchers for the M&S Café.
On top of this, you'll receive a £100 gift card just for switching to the account and if you transfer at least two direct debits or standing orders, you'll get a 20% discount for 12 shopping trips. In addition, the account gives you access to a regular savings account paying 6.00% AER.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.