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High interest current accounts
What is a high-interest account?
Many of us don’t notice the interest we earn on money in our current accounts mainly because they often pay virtually nothing on balances in credit – and some pay zero interest. However, there are a number of high-interest current accounts which are ideal if you always have money in your account and don’t go overdrawn.
Who do they suit?
High-interest bank accounts are great if you tend to keep a high balance in your account and as long as you never slip into the red. Many of the best deals require you to pay in a certain amount each month, often between £1,000 and £1,500 – so you need to be certain you will qualify for the account.
Benefits
The benefits are fairly clear – if you typically leave a balance in your current account then you could earn a decent rate of interest on it. In fact, some high-interest current accounts actually pay more than many savings accounts.
For example, if you leave an average balance of £1,000 in a high-interest bank account paying 5.00%, you’ll earn £50 a year in interest.
Some high-interest bank accounts will also offer a linked savings account and this may have a more competitive rate than you will find elsewhere, although you should not take that for granted – it’s still worth comparing savings accounts to check you have the best deal.
Other high-interest savings accounts may offer a cash switching incentive.
Negatives
In many cases the high rate of interest only applies on balances up to a certain level – often £2,500. Above this amount, the rate tends to drop to 0.1%. There are a couple of exceptions so it’s well worth checking all the product details before you apply.
It’s also important to note that the high interest rates are usually introductory offers and the rate is likely to drop after 12 months. With so few people switching their current accounts regularly, banks and building societies know that they will usually keep your custom even once the high introductory rate has ended.
As already mentioned, an increasing number of current accounts require customers to pay in a minimum amount each month and this is usually the case with high-interest current accounts. What’s more, the money you deposit may have to be your salary.
High-interest current accounts are aimed at those who run their accounts in credit. If you have a tendency to go overdrawn, you will probably be better off with a different account as the overdraft rates tend not to be the most competitive.
Alternatives
If you are looking for somewhere more long-term to keep your savings, a high interest current account may not be the best option. An Individual Savings Account (ISA) is always a good place to begin saving as the interest you earn isn’t taxed, so consider investing into a cash ISA first. You can invest up to £20,000 in a cash ISA before the current tax year ends on 5 April 2018.
You can usually secure a high rate of interest by agreeing to lock your money away for a fixed period, or you can use an easy access account if you want to be able to get at your cash immediately.