Thursday, 10 November 2016

Save in October Day 13: Earning interest from current accounts

Where to find interest rates to shoot the lights out

This week was the first time I've ever regretted not being robbed.

(I've got some pretty big regrets about the US election too, but will try to shut up about those).

During October, I opened a Tesco current account to stash some of my savings.
Then this weekend, I was pelted with texts and news that hackers had attacked Tesco Bank and stolen money from 20,000 accounts.

As a money journalist, it would have made a great story if my account was raided.
Unfortunately, "Tesco Bank customer, money completely fine" doesn't make such a good headline.

So my Tesco balance is still intact (phew) and more importantly, is paying 3% interest on my savings.

Make your money work for you

Here at Much More With Less, I'm a big fan of earning money for nothing. I'm all in favour of handing my emergency cash to a bank, and getting paid for the privilege.

OK, so interest rates are pretty rubbish right now, but it's got to be better than hiding it from hackers under the mattress, and earning zip all.

If I just popped my savings in a money box, I'd be much more likely to spend it too.

Why I'm saving in a current account

So as part of the October savings challenge, making small changes each day to spend less, earn more and save a chunk of cash for Christmas, I wanted to find a high-paying home for my readies.

In today's topsy turvy world, you can earn more interest on your money from a current account than a savings account. Weird eh?

The highest paying accounts have been cutting interest rates right, left and centre (yeah, thanks a lot Santander, Lloyds and TSB).

I would dearly love to scoop up my money and flounce away in protest.

However, I am forced to admit that even with the rates slashed - current accounts still represent the best chance to earn more interest on your savings.

Top tips for saving in a current account

When you get to the list of current account below, it might all sound like a lot of hassle.
However, if you can grit your teeth and sort out the admin at the start, it then all takes care of itself.
Even better, most of it can be organised on computer, without having to schlep to a bank.

These are my top tips for saving in a current account:

1. Look for the highest rates. I recommend checking the independent website Savings Champion. It's best buy tables are clear and easy to understand, and its run by Sue and Anna who really know their stuff.

2. Watch out for the maximum balances. The table-topping rates tend to be only available on a limited amount of cash. I appreciate that's not a problem if you've only got a tenner to you name. However, if you're aiming to save an emergency fund to cover expenses for three to six months, it could become an issue.

3. Newsflash: you can have more than one current account. Fortunate enough to have more savings than the maximum that earns interest in one account? Open another account. In fact, open several. Between us, my husband and I have seven (count 'em) current accounts. It helps us earn as much interest as possible, before we have to splash out on a new roof.
It also means we can use current accounts for different purposes. I can keep my work expenses separate from the account that earns cashback on household bills, and separate again from the current accounts paying interest on our savings.

4. Don't worry, you don't have to switch. With most of the interest-paying accounts, you can just open a new account, and don't have to switch your tried and tested ordinary current account.
Mind you, if you're willing to switch your account entirely, First Direct will pay you £100, M&S Bank doles out a £100 gift voucher just for switching, and if you act quickly, the Co-op Bank will bung you £150 if you switch tomorrow (11 November). There are also other benefits if you jump through certain hoops.

5. Read the small print. Current accounts paying decent interest can be tricksy things. To earn the interest, they might demand that you pay in a minimum amount each month, set up a certain number of direct debits or use internet banking a certain number of times.

6. Set up standing orders in a circle. If you have to make certain minimum payments each month, remember you can always set up a standing order from your main account, to transfer money across, and then set up another standing order back again a few days later. OK so it might require a bit of admin at the start - but after that it takes care of itself.

7. Get paid to pay your bills.
I've written in the past about how you can make money from your household bills. Santander, NatWest and RBS all have accounts that pay you up to 3% cashback on your main utility bills - water, gas, electricity, council tax, mobile phone, landline, broadband and any TV subscriptions.
I use the Santander account, because it pays interest on chunky credit balances as well as 1%, 2% or 3% cashback depending on the bill, but it did hoik its fees up to £5 a month, and has now halved the interest rate too.
If you don't have significant savings, the NatWest and RBS Reward current accounts pay a flat rate of 3%, and charge a lower £3 a month fee.

8. Dole out the direct debits. 
Some current accounts will only pay out if you set up a certain number of direct debits. Don't miss out on extra money, just because you couldn't be bothered to switch extra direct debits. Like the standing orders to meet minimum income rules, once you've done it, the direct debits take care of themselves.
I pay any direct debits that will earn cashback out of our Santander account, and then use other ones to meet the requirements for other current accounts.
Examples might be the direct debits for your TV licence, life assurance and any insurance policies you don't pay in a lump sum, like cover for pets, buildings, contents or your car. If you have a problem coming up with enough direct debits, consider setting up a small monthly payment to your favourite charity.

9. Earn more from regular saver accounts.
If you want to save even more, some of the current accounts have linked regular saving accounts that pay chunky interest on limited monthly payments. Nationwide, First Direct and M&S Bank all offer regular saver accounts paying 5% for a year - but you can only open them if you're already a current account customer. You can pay in up to £500, £300 or £250 a month, respectively.

Best rates right now

So what's left?

Nationwide pays 5% on the Flexclusive current account on balances up to £2,500. You have to pay in £1,000 a month and the rate drops to 1% after a year.
Most interest you could earn in a year: £250.

TSB currently pays 5% on the Classic Plus current account on balances up to £2,000. You have to pay in £500 a month, register for internet banking and paperless statements and correspondence.
TSB will also hand over 5% cashback on the first £100 you spend each month on a contactless debit card, up to 30 September 2017.
However, from January, the rate drops to 3% on up to £1,500.
If you're willing to switch your account, MoneySavingExpert has a link that promises £100, provided you apply before 11 December and switch everything over before 30 December. (Here's the page with the MSE link)
From January, most interest you could earn in a year: £45. So £100 switching bonus would be handy.

Lloyds currently pays as much as 4% on the Club Lloyds account, if you have a balance between £4,000 and £5,000. You have to pay in £1,500 a month, or they'll swipe a £5 fee. You also need to pay two direct debits each month. However, the rate is dropping to 2% on all balances under £5,000 in January.
From January, most interest you could earn in a year: £100

Tesco Bank pays 3% on balances up to £3,000 on a nice simple account. There's no monthly fee, no need to set up direct debits, and no minimum monthly payment.
Most interest you could earn in a year: £90. 

Bank of Scotland via Vantage also pays as much as 3%, and on higher balances up to £5,000. You have to pay in at least £1,000 a month, stay in credit and pay two direct debits each month, but there's no monthly fee.
Most interest you could earn in a year: £150

Santander 123 current account always used to be a good bet, because it paid interest on a much higher balance than other current accounts - up to £20,000 - and paid up to 3% cashback on bills.
However, first it hoiked up the monthly fee from £2 to £5, and now it has halved the interest rate from 3% to 1.5%.
If your cashback covers the monthly fee, the most interest you could earn in a year is now £300.
Spreading your money across several higher paying current accounts is now likely to pay more interest than sticking with Santander.

I opened a Tesco Bank account as part of the October savings challenge because I already have current accounts with TSB, Nationwide, Lloyds and Santander, all of which have either already cut my interest rates, or will do so in January. Curses.

Anyone else making money from their current account? Any top tips on how to earn extra interest? I'd love to hear!

Disclaimer: this post isn't sponsored, and doesn't contain any affiliate links, it's just based on my own research and experience.


  1. A timely post - not for me exactly but for my soon to be 16 son. He already has savings accounts but I want him to open a current account too. The Tesco account is interesting, as he won't be able to pay in a regular amount. I didn't think he would find a current account, which pays interest, without a monthly fee. Thank you for the information.

    1. Really glad the Tesco current account might be good for your son. Always better to be earning 3% interest than nothing at all!

  2. We changed our [ancient] Natwest account to one which pays us back a percentage of household bills. We also get a payback for using the credit card [and till the end of 2016, an extra bonus if we use contactless] It's not much, but better than nothing [and we always pay CC in full each month, so we don't incur interest charges] I havent checked, but I reckon it works out at a little more than £100 a year.

    1. Cashback is such a winner, isn't it? Whether it's via a cashback website, current account or credit card, it's brilliant to get paid back a proportion of money you'd spend anyway. Over the last year, we've earned £60 or so from a cashback credit card, and another £60 from Santander 123 account. The Santander cashback covers the account fee, so we can then pocket all the interest on our balance. If we didn't have the savings, I'd be over to a NatWest Rewards account like a shot.

  3. We visited LLoyds yesterday as we already have a Lloyds Club account, until this month paying 4% on balances which are over £5,000 (and remain over £5,000, of course, to get the full 4%) but from now the interest has dropped to 2%.
    Margaret P

    1. Yes, gutted that the rate on the Club Lloyds account will be halved to 2% from 8 January 2017, it's been a nice little earner for me.

    2. Yes, and the Club monthly saver is now only 3% rather than 4% even. Putting the maximum you can each month into this account (i.e. £400) has only earned us a little over £91. Hardly worth the hassle although I suppose it's better than nowt!
      Margaret P

    3. I'm definitely in the "better than nowt" camp, Margaret! It's massively frustrating that interest rates are so low, but I'd happily take £91 just for setting up a standing order.

  4. We've been doing the current account dance for our savings for a few years now and loved it. Yes, it's gutting that the rates are being chopped now (and just when I was ready to add a few more like Club Lloyds or Tesco) but it's still the best and easiest way to make your savings work for you. :)

    1. Hi Lee, glad you've had a good time getting more from your current accounts - I reckon the extra money really is worth it!