However, while Abbey and A&L have increased their in-credit rates, HSBC announced it would no longer pay interest on its Bank Account Plus. This is a packaged account which has a monthly fee of £9.95 for the first three months and £12.95 thereafter. In return for paying a monthly fee customers receive added benefits such as travel insurance, breakdown, life cover and preferential rates on certain other products. For example customers qualify for HSBC’s Regular Saver account which pays a fixed rate of 10% for a year.
An increasing number of current accounts pay no interest on balances in credit – in fact more than 40% of the market doesn’t credit customers for keeping their balances in the black.
The current account market as a whole is becoming increasingly complex, making it more important than ever to think about how you use your account and ensuring you have the most suitable product for your requirements.
What to consider when comparing products
With rates of 6.0% the Abbey and A&L deals are in many ways the best current accounts available. Someone with a balance of £1,740 – the national average – would earn £104 in interest over the first year, compared with zero if they had a Barclays Account, HSBC Current Account Advance or First Direct’s 1st Account, which are among the many that don’t pay any interest.
However, Abbey or A&L won’t necessarily be the best for everyone. Before you shop around think about which of the following statements applies to you:
“I am always in credit” – If you never touch an overdraft you’ll want the best rate of return on your balance but this can be affected by the amount of cash you keep in your account.
“I go overdrawn” – Finding the best rate on an overdraft is determined by how much and how often you go into the red.
“I have been rejected for current accounts before” – If you have poor credit you may need to go back to basics with a basic bank account.
For more information on things you should consider before shopping around, read our article 'How to choose a current account'. Below, we look at the best deals as they apply to each of these statements.
“I am always in credit…”
If you’re fortunate enough to stay in the black all the time then look for the best deal based on how much you keep in your current account.
Rather than paying an annual rate of interest, the Halifax Reward Account credits customers' accounts with £5 a month – £60 a year - assuming they pay in at least £1,000 each month. However, if your average balance tends to be more than £1,000 other deals beat it – for the first year at least.
This is where the A&L Premier Direct and Abbey Preferred In-Credit Rate come into their own offering a fixed rate of 6.0% on balances up to £2,500 – you earn just 0.1% above that. The Abbey deal requires customers to pay in £1,000 each month but the A&L account only needs monthly deposits of £500. It’s also worth noting that A&L Premier Direct is an online account so you must be happy to bank over the internet or phone as there is no branch access.
The A&L Premier 50 account also pays 6.0% on balances up to £2,500. This is a packaged account available to those aged 50 or over, with incentives such as annual multi-trip travel insurance up to the age of 79 – but it also includes a £10 monthly fee. For more details on these accounts, read our article 'Earn more on your current account'.
However, the 6.0% rate lasts only for a year – thereafter it drops to 1.0%. The £5 monthly credit on the Halifax Reward Account on the other hand is not just an introductory offer, so you may decide that the long term value from that outweighs the short-term benefit of A&L or Abbey’s higher initial return – you could of course open one of their accounts now to benefit from the 6.0% rate and move to another current account next year.
If you keep a very large balance in your current account Lloyds TSB’s Classic Account with Vantage could be a better option – it pays 4% on balances between £5,000 and £7,000. Someone with an average balance of £5,000 would earn £200 interest over the year compared with £152.50 with A&L Premier Direct or Abbey Preferred In-Credit.
If you do have a large amount in your current account, it’s probably best to put some of the cash into a savings account.
“I go overdrawn…”
A&L has the top overdraft proposition on the market as it offers a 12month 0% overdraft if you pay in £500 a month to the Premier Direct, Premier 50 or Premier current accounts. After the first year A&L’s charging system means you pay 50p a day while you have a negative balance up to a maximum of £5 a month. If you have a large overdraft and stay consistently overdrawn this remains one of the best propositions available.
There are alternatives, however. Abbey’s Preferred Overdraft Rate also offers a 12month 0% overdraft as long as you pay in £1,000 a month. After a year the overdraft rate increases to 12.9%.
“I have been rejected for current accounts before…”
Most current account providers will check your credit profile before accepting you as a new customer. If you have been rejected for a current account before you may want to consider a basic bank account – these are designed for people with poor credit scores.
Basic bank accounts don’t offer an overdraft and the interest is minimal. However, they do offer somewhere to store your money while you build up your credit. They are available from all the major high street banks and building societies.
For more current account options no matter what your credit history may be, use our current account comparison tool.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing. Products underlined can be applied for directly.