A quick look at the best current accounts available in the UK right now and why you should consider either switching from your current provider or opening a new bank account alongside your current one.
I should probably start this post off by reminding everyone that I am not a qualified/licensed financial adviser! These are just the bank accounts that I personally use and think are good after some research. See my disclaimer for more details.
Now, on with the show:
Best UK Bank Accounts for Savings:
Nationwide’s FlexDirect account is, in my opinion, the best bank account in the UK right now. They offer 5% interest on up to £2500 for the first 12 months, before dropping to 1% afterwards. The only requirement is to pay in £1000 per month. However, this doesn’t have to be your salary; you could could transfer a lump sum of £1000 from another bank account and then send it back again, or pay in £100 ten times, etc.
They also have a “refer a friend” scheme. If you refer someone else to Nationwide and they switch a current account from a different provider, you will both get an easy £100 each.
The account also gives you the option to open a linked 5% regular savings account; you can pay in £250 per month, and you receive 5% interest on the amount at the end of the year. The interest is calculated daily.
TSB Classic Plus
Despite their IT troubles earlier in the year, TSB offer a pretty great current account. As well as paying 5% interest on anything up to £1500, they also offer a decent cashback arrangement. They will pay you £5 for each month that you have two direct debits leave your account, and another £5 each month you use your debit card more than 20 times. This means you can earn up to £16 per month just for using the account. The only requirement is that you need to pay in at least £500 each month.
Tesco pay 3% on anything up to £3000. The interest rate is guaranteed until April 2019; after that it may drop, but I’m not sure what it will drop to! Unusually, you are allowed to open two separate accounts, so you could store a total of £6000. The only requirements are that each account needs to pay out three direct debits each month, and you have to pay in £750 per month from a non-Tesco account. A further advantage, if you shop regularly at Tesco, is that you will get bonus clubcard points for using the debit card; one point per £1 spent in Tesco and one point per £8 spent elsewhere.
The importance of high interest current accounts to boost your savings
Several reports over the years have shown that people very rarely switch their bank accounts. In fact, only 3% of those surveyed in 2016 had switched their account in the previous year. I find this crazy as banks nowadays do not usually reward you for your loyalty! On the other hand, you can make your money work for you by switching your provider to take advantage of higher competitive interest rates.
For example, if you had £10,000 sat in a current account, you could make an extra £300-£400 per year with very little effort. Below is a comparison of if you left your money in a savings account paying 0.55% interest (which is the amount that mine is now paying after the year long bonus finished), if you opened the new Marcus account by Goldman Sachs (paying 1.5%), or if you opened the above 3 current accounts:
|Current Account||Amount in the account||Interest Rate||Total interest received per year||Total interest received per month||Cashback per month||Monthly cost of the account*||Total received per month||Total received per year|
* – each of the above current accounts are technically free to use. However, I’m factoring in the cost of the required direct debits, assuming that each direct debit costs £1.
|Savings Account||Amount in the account||Interest Rate||Total received per month||Total received per year|
|Typical Savings Account||£10,000||0.55%||£4.58||£55.00|
As you can see, opening a few current accounts can earn you an extra £300-£400 per year. This might sound like a tiny amount of money, but I would argue against that with two things. Firstly, it will only take an hour or two to set up these accounts. £300 earned over two hours is £150 per hour, tax free (thanks to the personal savings allowance, which allows you to earn £1000 per year in interest without paying tax), which is far more than I earn! Secondly, inflation is currently around 3%, so leaving your money in an account that pays only 0.55% interest means that your money is essentially losing purchasing power over time.
This is how I’m currently able to get around £50 per month purely in interest and bank rewards from my current accounts, as I’ve shown in previous Income & Expenses reports. It’s obviously not a ground breaking amount, but at the same time, it’s free, easy money! And takes no more than an hour to set up initially, and then a few minutes every 1-2 months to check each account and ensure everything is still running smoothly.
But isn’t switching a pain??
No, not at all. You simply tick the “switch” box and give your previous bank details and the banks will handle everything for you. More information can be found here.
Plus, let’s not forget the recent troubles with TSB and Barclays. Having just one bank account in this day and age doesn’t make any sense. I think it’s wise to have 2-3 different accounts, and make use of both Visa and MasterCard. Doing this will mean that you won’t be locked out from accessing your money in an emergency, even if one or two providers suffer unforeseen technical problems.