How the best-paying current accounts freeze out pensioners

Do you rely on your state pension as your main income in retirement? If so, chances are you’ll be left out in the cold by the best in-credit current accounts.

Many of the top current accounts now pay much more than most savings accounts and so appeal to older people wanting their money to go further.

You can get variable AERs (annual equivalent rates) of up to 5% a year before tax, compared to an average top 10 savings rate of 1.25% AER (variable).

But research by MoneySuperMarket reveals that pensioners on low incomes WON’T be able to bag one of these best buys.

That’s because most accounts require you to pay in a big lump sum every month to qualify – much more than the average state pension of £115.95 a week.

There may also be restrictions and requirements with these accounts, such as needing to set up a certain number of direct debits and having to manage the account online. It’s also important to check whether the stated rate of interest is only available for a set period.

But back to the required payment each month. If your weekly income is below £151.20, Pension Credit will top you up to that amount.

“Many pensioners are suffering as they can’t benefit from the deals that the majority of consumers take for granted”

But even so, at £655 a month, this still isn’t enough to meet the minimum funding requirement imposed by most of the top current accounts.

Here are some of minimum funding requirements for the top accounts:

  • Club Lloyds Current Account: Minimum monthly funding of £1,500 required to qualify for up to 4.00% AER interest (variable) on balances between £4,000 and £5,000.
  • Nationwide Building Society FlexDirect Current Account: Minimum monthly funding of £1,000 required to qualify for 5.00% AER (variable) on balances up to £2,500.
  • Bank of Scotland Classic Account with Vantage: Minimum monthly funding of £1,000 required to qualify for 3.00% AER (variable) on balances between £3,000 and £5,000.
  • Yorkshire Bank/ Clydesdale Bank Current Account Direct: Minimum monthly funding of £1,000 required to qualify for 2.00% AER (variable) on balances up to £3,000.
  • Coventry Building Society Coventry First: Minimum monthly funding of £1,000 required to qualify for 1.10% AER (variable) on balances up to £250,000.
  • First Direct 1st Account: Minimum monthly funding of £1,000 required. 0% credit interest but £125 cashback when opening an account.
  • Tesco Bank Current Account: Minimum monthly funding requirement of £750 required to qualify for 3.00% AER (variable) on balances up to £3,000.

Kevin Mountford, head of banking at MoneySuperMarket said: “It is great that we are seeing a fantastic number of current account offers on the market and providers upping the ante to entice savers. However, many pensioners are suffering as they can’t benefit from the deals that the majority of consumers take for granted.

“The money coming in each month for someone just on the state pension is too low to unlock the best current account rates due to the restrictive minimum funding requirements, leaving them frozen out of the best rates on the market, when many of them rely on savings to top up their income.”

Accounts with lower funding requirements

There are two accounts which are accessible to pensioners who rely on the state pension to survive. These are:

  • TSB’s Classic Plus account, offering 5.00% AER (variable) on balances up to £2,000, with a minimum funding requirement of £500 per month – or £125 per week
  • Santander’s 123 Current Account paying 3.00% AER (variable) on balances of between £3,000 and £20,000, with a minimum funding requirement of £500 per month. But this account comes with a £2 monthly fee.

There are also a couple of current accounts which don’t impose any monthly funding requirement:

  • M&S Bank Current Account: Although this account doesn’t pay interest if you’re in credit, it does give you access to a 12-month fixed rate regular savings account paying a whopping 6.00% AER. You also get £100 cashback via an M&S gift card (T&Cs apply) when you switch and you earn one point per £1 spent in M&S.
  • Virgin Money Essentials Current Account: You’ll earn 1.00% AER (variable) and there’s no minimum funding requirement.

Kevin Mountford said: “It’s vital to read all the terms and conditions which come with an account to ensure you qualify for the benefits and can maintain the necessary requirements and don’t end up paying any fees and charges that can be easily avoided.”

Top tip

Some current account providers offer cashback for switching. First Direct’s 1st account and Halifax’s Reward account, for example, are currently offering a £125 welcome but these offers will both be withdrawn on 31 May and replaced with a £100 switching incentive.

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.

 

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