To qualify however, banks and building societies want you to use the account as your main current account. Usually this means funding the account with a minimum monthly payment and setting up some outgoing direct debits.
Interest rates on current accounts used to be quoted before tax, with 20% automatically deducted before the interest landed in your account. However, since the introduction of the new Personal Savings Allowance (PSA) in April 2016, banks and building societies no longer deduct any tax, and instead pay interest gross. The PSA means that basic-rate taxpayers can earn £1,000 of savings interest without the taxman taking a slice, and higher rate taxpayers can earn £500. Additional rate taxpayers are not eligible for a PSA.
Rates on current accounts are variable, so bear in mind that they could change.
The Santander 123 account is great if you have a decent-sized chunk of savings to find a home for, as it pays 1.5% AER variable (annual equivalent rate) on your entire balance up to £20,000.
The 123 account also pays between 1% and 3% cashback on your household bills – and this includes your mortgage payment if it’s with Santander.
You’ll need to fund the 123 account with at least £500 a month, which is the equivalent of a £6,000 annual salary, and set up two outgoing direct debits. This account charges a monthly fee of £5.
TSB’s Classic Plus makes sense for savers with balances of around £1,500, as the account pays a very-decent AER of 3.00% variable on cash up to this amount.
You’ll need to service TSB’s Classic Plus account with at least £500 a month (equivalent to £6,000 annual salary) and register for online banking to benefit from the 3.00% interest. No interest is paid on any balance above £1,500.