High interest current accounts

Earn a juicy rate on your current account balance while still accessing your money when you need it.

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Although quite a rare beast these days, high interest current accounts are still a thing. Don’t expect to make the big bucks (we’re talking the equivalent of three or four free dinners a year), but if you can get one, it’s definitely worth it.

The higher the rate the better, but there are a few extra tricks to compare them and make sure you get the best deal. We’ve gathered them for you.

How do high interest current accounts work?

As you may have guessed from the name, high interest current accounts are standard current accounts that also pay an interest rate on your account balance up to a certain limit.

The interest rate can be quite juicy, at least if you compare it to easy access savings accounts, but the balance limit on which it’s paid is generally low, so don’t get your hopes too high. You may also have to meet certain conditions (for example pay a certain sum into the account every month) to get the best rate.

The interest will usually be paid monthly directly into your current account.

How to compare high interest current accounts

The higher the interest, the better, right? Well, yes, but that’s not the only aspect you should take into account when comparing deals:

  • Interest rate. Top-paying accounts may reach a 5% annual rate. Sometimes. If you’re lucky.
  • Eligibility criteria. You’ll usually need to pay a minimum amount into the account every month to get the advertised rate. With some premium accounts, this limit is fairly high and may be more than your monthly salary, in which case you should probably look for an alternative.
  • Balance limit up to which the top rate is paid. A great interest rate often comes with a low limit. If you don’t have much in savings, it’s a great solution. Otherwise, you may want to see if you can get more from a competitor that pays a lower late but on a higher balance. However, don’t forget to take into account how much that extra balance could be worth in interest if kept in a separate savings account.
  • Time limit. Top rates are often just introductory offers that last a year or so. What will happen when the deal is over?
  • How much you can earn in a year. That’s the raw figure you should ultimately be looking at. It allows you to figure out which account is best, not in general, but for your particular situation.

You should also spare a thought for the features you may be giving up in return for a higher interest rate. How’s the customer service of the bank you’re considering? Is the app slick? Can you get an overdraft or a credit card if you need them? Also, in the worst case scenario: is it really worth putting up with a terrible banking experience for £100 in interest a year?

High interest current accounts vs savings accounts

Why choose when you can have both? Most savers will be better off by opening both a high interest current account and a savings account on top. It all comes down to how much you have saved and are planning to save in the near future. You should follow these steps:

  • Fill your high interest current account first. Up to the limit. Easy access current accounts pay a lower rate, so they should come second.
  • Compare savings accounts and open one. Choose the best type of savings account for your circumstances. For example, can you afford to lock away part of your savings for a while? Fixed bonds offer better rates than easy access savings account.
  • Regularly move money from your current account to your savings account. Once you’ve reached the maximum balance of your high interest current account, you should move any extra money you want to save to your savings account (or you won’t earn interest on it).

Alternatives to high interest current accounts

As we said, if you’re looking for an easy access savings account that pays a similar interest rate, you’re probably out of luck. However, you could consider:

  • Regular savings accounts. These are the only types of savings accounts that can compete with high interest current accounts when it comes to interest rates. They usually allow you to set aside a certain sum each month for a year. The main advantage is that your savings are kept in a separate account, so you’re not tempted to spend them. However, you usually can’t access your money until the product expires.
  • Current accounts that offer a switching incentive. When you do the maths, most high interest current accounts won’t allow you to earn more than £100 a year in interest. There are comparable switching incentives available out there, so it’s definitely an option to consider.

Be careful when comparing the interest rate and the balance limit of a regular savings account with those of a high interest current account. With the current account, you can fill the account to the limit from the very start and earn the maximum interest possible. With the regular savings account, you can only add money to it monthly instead. So even if the two accounts offer the same rate and the same limit, the current account will actually allow you to earn more.

Pros and cons

Pros

  • You always have access to your money.
  • You can find fairly high interest rates, especially compared to easy access savings accounts.
  • Great if you only have a small sum in savings, it’ll allow you to make the most of it.

Cons

  • You only get interest up to a certain balance limit.
  • You usually need to pay a certain sum into the account every month.
  • Savings aren’t kept separate from your day-to-day spending, so budgeting and saving can become more difficult.

Frequently asked questions

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