This week's best current accounts
Interest rates on savings accounts are so low that more people are turning to their current accounts to grow their savings.
If you keep your balance in credit they can deliver bumper returns, but some heavily penalise overdrawn customers, so if you frequently have a low balance it’s better to opt for an account that offers cheaper agreed borrowing.
Many others offer attractive up-front offers to tempt you into switching. There’s normally a couple hoops to jump through, but if it’s very easy to do through the Current Account Switching Service, and returns can be lucrative.
Around a million people switched current account last year. There's never been a better time to do it, with several banks offering to pay you £100+ to join.
Each week Moneywise will be bringing you the best of what the current account market has to offer.
Nationwide’s FlexDirect account pays 5% interest on balances of up to £2,500. However, that’s an introductory 12-month offer and when it ends the rate drops to just 1% interest on the first £2,500. Agreed overdrafts are free for the first year. You’ll need to pay in at least £1,000 a month.
Alternatively, the TSB Classic Plus account will pay 5% interest on balances up to £2,000, but the rate is going to be slashed in the new year. You’ll need to pay in at least £500 a month, register for internet banking, opt for bank statements and paperless correspondence to get the bonus rate, and there’s a linked regular savings account paying 5% too. It's still worth considering for the other perks.
The Santander 123 Current Account pays 3% interest on balances between £3,000 and £20,000, 2% on balances between £2,000 and £3,000 and 1% on balances between £1,000 and £2,000. However, Santander has announced it’ll halve the top interest rate in November to 1.5%. There’s some respite as the rate is paid on any balance between £1 and £20,000. There’s a £5 monthly fee, but also very generous cashback on household and utility bills.
The Halifax Reward Account could prove better value for smaller balances, providing you stay in the black. It pays £5 a month every month, but this will fall to £3 a month early next year, you don’t go overdrawn. This reward is treated as an ‘annual payment’ by the taxman, instead of interest, which means the tax is paid by Halifax at source, at the £60 a year won’t go towards your personal savings allowance. Go into the red and you’ll be charged £1 every day you’re in your overdraft. If this looks like the account for you, don’t get one before reading about the introductory offer.
Best introductory offers
The Co-operative Bank is offering £150 to new customers who join via the Current Account Switching Service. The deal only applies to standard and premium accounts, not basic or student accounts. To be eligible, you must not have claimed a switched bonus from either company before, and you must not be an existing customer (defined as current account customers depositing £800+ a month).
Elsewhere. M&S Bank will give a £100 M&S gift card to new current account customers, plus a £10 voucher each month for a year, providing you pay in at least £1,000 a month. That's worth a little more than the Co-op deal, but only if you're an M&S shopper. You’ll need to switch your account and transfer two monthly direct debits to qualify. The deal is available on M&S’s free standard account, or its £10 a month Premium Account.
First Direct's 1st account will pay you £100 cash if you switch to one of its current accounts. First Direct will also pay you another £100 if you are unhappy with the service and leave after the first six months. To qualify, you’ll need to transfer via the Current Account Switching service and deposit at least £1,000 in the first three months.
Halifax will pay £100 to anyone who switches to its Current Account, Reward Current Account or Ultimate Reward Account. The latter charges a £10 monthly fee, or £15 if you pay in less than £750 per month. You’ll need to sign up via the Current Account Switching Service and set up at least four direct debits.
Best authorised overdrafts
Interest on the First Direct 1st Account is charged at 15.9% AER, with the first £250 interest-free. It costs £1.01 to be overdrawn by £500 for ten days, and £9.09 to be overdrawn by £1,000 for 30 days.
M&S Bank’s Current Account has an interest-free £100 overdraft. Go further into the red and you’ll be charged 15.9% APR. You’ll pay 30p to be overdrawn by £250 for five days a month, and £1.62 if you’re overdrawn by £500 for ten days a month.
Best for customer service
Picking the right bank isn’t just about getting the highest interest rate, or lowest overdraft fees. Service is equally important.
That’s why our Customer Service Awards look at the companies readers trust the most each year.
The 2016 Awards, which consider the views of 24,000 readers, show that Metro Bank is the most trusted current account provider in the UK in 2016. It’s readers scored it 4.9 / 5 for trust, narrowly beating First Direct, which has also consistently scored well over the years.
Nationwide, TSB and Santander complete the top five in that order, with customers swayed by high-interest deals.
Almost half of Moneywise readers have switched their current account provider to get a better deal or better service – is it time for you to join them?
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.