With so many different options to choose from, there is no shortage of opportunity to review rates and switch to a personal banking solution that offers favourable terms. However, despite the wide range of offers available, many people remain with their existing current account provider even when their rates are less than competitive. This inertia is generally attributed to the fact that consumers simply don’t realise the ease with which they can switch to a more effective account. Some develop brand loyalty over time that prevents them from shopping around for more effective deals.
Are you paying for the privilege of saving with a bank?
A new study by Savings Champion, the UK financial advice service, indicates that there are over 600 savings accounts (14% of all UK bank accounts held) which actually pay out less than 0.3% interest on monies held. Essentially, this means that consumers are actually paying their bank to store their cash, as the rate of inflation is higher than the accrued interest within these accounts. HSBC, First Direct and others offer just 0.05% interest, which amounts to customers achieving a paltry £5 for every £10,000 saved with the firm.
Choosing the best current account to switch to
Given the prevalence of poor rewards for consumers, it’s important to shop around and switch current accounts periodically, to make sure that you benefit from the best possible deals on the market. If you’re confused about the various rates available, follow this quick guide to select the best current accounts and start getting a better return on your hard-earned cash…
Best “Switch Accounts” Offers
Co-op Standard Current Account
The Co-op will pay you £150 if you switch to it. You can also earn up to £5.50 a month with its Everyday Rewards scheme meaning you could earn £216 in the first year (the maximum benefits earned falls to £66 per year after this). It’s a bit of work to earn the rewards – you need to pay in £800 per month, pay out 4 direct debits, receive statements by email and log in regularly as well as stay within your overdraft limit.
Co-op offers the full £75,000 UK savings safety guarantee in conjunction with Smile and Britannia BS, so make sure you don’t have more than £75,000 across the three brands or you won’t be fully covered.
M&S Bank offer a £100 M&S Gift Card if you switch to it. You can also earn an extra £10 per month (added to the gift card each month) when you pay in £1,000 per month. This means you can earn a total of £220 in the first year.
Another benefit of M&S Bank is you get access to its 5% Regular Saving account. This savings account is one of highest interest paying savings account on the market. You can earn 5% interest on deposits of between £25 and £250 per month, up to £3,000 in any year. M&S Bank offers the full £75,000 UK Savings Safety Guarantee.
Halifax Reward Account
Halifax offer both a £100 switching bonus and an ongoing £5 per month reward (although this falls to £3 from January). In order to qualify for the ongoing bonus you must pay in at least £750 per month, don’t go overdrawn and pay out at least 2 direct debits per month.
Halifax offers the full £75,000 UK Savings Safety Guarantee in conjunction with all the other brands in the group. This means you shouldn’t hold more than £75,000 across Halifax, Bank of Scotland, Birmingham Midshires, The AA and Intelligent Finance.
Best Accounts For Interest On Savings
TSB’s Classic Plus
The TSB Classic Plus is one of the best current accounts available at the moment. It offers 5% on balances of up to £2,000. However this rate will drop in January to 3% on up to £1,500. It also offers customers 5% cashback on the first £100 spent each month through contactless debit card transactions. This could earn you over £100 per year. TSB will also offer a free bonus of £100 when you switch to them if certain criteria are met.
The downside is that customers wanting to use the account are required to pay in a minimum of £500 each month to benefit from the rate. They also need to register for the online banking function and opt for paperless statements. TSB offers the full £75,000 UK Savings Safety Guarantee.
FlexDirect from Nationwide also pays out 5% interest for account holders. The rate is applied for all savings held in the account, up to a maximum of £2,500. The downside, however, is that anyone wishing to use the account is required to pay in a minimum of £1,000 each month to maintain the rate. And after just twelve months Nationwide actually decreases the interest to just 1%.
Nationwide offer a “refer a friend scheme” which nets both you and your friend a £100 bonus if they switch to this account. You can refer up to 10 friends per year, earning you a nice £1,000 bonus if you’re a persuasive type. The account offers an interest free overdraft for 12 months (reverts to 50p per day for the overdraft after 12 months). Nationwide offers the full £75,000 UK Savings Safety Guarantee.
Club Lloyds Account
Club Lloyds account customers are able to realise 4% interest on their balances, provided that they hold between £4,000 and £5,000 in the account. However, there are some significant restrictions for account holders to achieve this rate, including being required to set up two direct debits from the account, and to pay in a minimum of £1,500 each month. In addition, customers are required to pay a £5 charge monthly (£3 from January) if they fail to adhere to this requirement. In the event that customers have smaller balances, this will lead to lower interest rates, with Lloyds offering just 1% on savings up to £2,000, and 2% for between £2,000 and £4,000.
The headline rate will fall in January to just 2% on the full balance of the account. Nationwide offers the full £75,000 UK Savings Safety Guarantee in conjunction with Cheltenham & Gloucester so make sure you don’t hold more than £75,000 between these 2 banks.
Best Account For Cashback
Natwest Cashback Account
If you are more interested in cashback than earning interest on savings then Natwest’s Cashback Account could be a good option for you. The account has a £3 monthly fee but offers 3% cashback on a range of household bills including council tax, utilities TV, phone and broadband. You need to spend at least £100 on these household bills to benefit from this account.
If you live in Scotland you can get the same deal from The Royal Bank of Scotland. Both banks offer the full £75,000 UK Savings Safety Guarantee.
Halifax Multi-Reward Current Account
To bank with Halifax and benefit from a range of added-value options, you’ll have to accept the fact that you won’t receive any interest at all on your current account. Instead, Halifax has provided a number of extras for banking with it, including pet insurance, travel insurance, mobile phone cover, AA breakdown cover and a range of cashback opportunities for certain purchases. However, it costs you a whopping £15 per month to maintain the account, unless you are able to pay in at least £750 each month, and run two direct debits from the service. If this is the case, your monthly payment reduces to £10 each month. However, it does offer customers a £125 switching incentive to encourage people to sign up.
Santander 123 Lite
The new Santander 123 Lite Account offers cashback on household bills in return for a £1 per month fee and no interest on your savings. You will earn 3% cashback on phone, broadband, mobile and TV. A lower rate of 2% cashback is earned on gas and electricity with 1% being offered on water, council tax and Santander mortgages.
To qualify for the cashback each month you must have paid your monthly fee, paid in at least £500 and have at least 2 active direct debits. Santander shares its £75,000 UK savings safety guarantee with Cahoot, so don’t hold more than £75,000 across the two banks.
Should you be switching current accounts right now?
This reluctance to undertake market comparison means that even for high earners, many of us are not reaping the various incentives and rewards available through sensible comparison of current accounts. There are a good number of positive deals out there for people prepared to shop around and select the best current account to meet their individual financial circumstances and requirements. A simple online comparison will show the best deals out there at the moment, and will provide details about the incentives the leading banks offer in order to persuade customers to make the change. Switching is painless, and you could reap significant rewards in terms of interest rates, perks and enhanced benefits.