Best UK Bank Accounts for Savings

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 FlexDirect

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

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 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
Nationwide £2,500.00 5.00% £125.00 £10.42 £0 £0.00 £10.42 £125.00
Tesco 1 £3,000.00 3.00% £90.00 £7.50 £0 £3.00 £4.50 £54.00
Tesco 2 £3,000.00 3.00% £90.00 £7.50 £0 £3.00 £4.50 £54.00
TSB £1,500 5.00% £75.00 £6.25 £10 £2.00 £14.25 £171.00
Total £10,000.00 N/A £380.00 £31.67 £10.00 £8.00 £33.67 £404.00

* – 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 Accounts:

Savings Account Amount in the account Interest Rate Total received per month Total received per year
Marcus £10,000 1.50% £12.50 £150.00
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.

10 Responses

    • Hi FmC!! Thanks for commenting, I’m glad that you found it useful :). I saw Saving Ninja’s article earlier, but I grabbed the bonus the last time they ran that promotion so unfortunately I’m ineligible this time! It’s definitely worth taking advantage of the various different accounts and rewards on offer, rather than sticking with just one provider.

    • Hi Iain! Thanks for commenting.

      I’ve never used that website myself, but have heard good things about it. I typically just set up a direct debit straight to charity; there are several that will accept a £1 donation every month, and I assume that they will then receive more of that £1 than they would if I was donating via little debits.

  1. Great article – I’ve been researching this as well. I’ve got something which I thought might interest you? I think I might be able to beat your figure above, with a total received of £485.

    Club Lloyds £5k @ 1.5% = £75, Free Vue cinema tickets 6 x £15 = £90, Club Lloyds regular saver £400 per month. Average £2,400 @ 2.5% = £60.

    M&S current account 0% interest, gift card £125 + top up £5 per month total £60 = £185, M&S regular saver £250 per month, average £1,500 @ 5% = £75.

    Assumes salary of £2,500 per month, split between Lloyds £1,500 and M&S £1,000, and you spend the vouchers at M&S and Vue cinema.

    What do you think? I like your blog – very helpful/informative!

    • Hi Adam. Thanks for commenting, and thank you for the kind words!

      I think you’ve got some great suggestions there. I wasn’t aware of the Club Lloyds Vue cinema tickets, I might have to look into that. I also didn’t consider the regular saver accounts; I was assuming that you had a lump sum of £10,000 to put somewhere, whereas the regular savers only allow you to pay in £200-300 per month.

      One thing I will say about the Club Lloyds and M&S account is that they don’t actually require a salary of £2500 per month. You can simply set up a standing order between the two accounts to satisfy the requirement. For example, I have a Nationwide and a Tesco account. The Nationwide account requires me to pay in £1000 per month, whilst the Tesco account requires me to pay in £750 per month. I have simply set up a standing order of £1000 between the two accounts. On the 14th of every month, £1000 leaves Nationwide and is sent to Tesco, and at the same time another £1000 leaves my Tesco account and arrives at Nationwide. The interest is therefore independent of your salary.

  2. Hi Dr F, thanks for the reply.

    I applied for a M&S account but hadn’t realised beforehand that it needs a full switch with the old account being closed to get your hands on the gift card. There’s always a catch! I think I may take up your offer of Nationwide as a second account after I’ve switched over to M&S.

    I am impressed you started your fire journey so early, which will give you a head start. I only started saving properly now in my 40s, spent my 30s paying down a mortgage, which has enabled what I can do now but like many/most spent a fortune on mortgage interest. Cheers

    • Unfortunately most banks require you to complete a full switch to them to get the free reward! Luckily it’s very easy to open up a second account with whoever you currently bank with, and then switch that one to a new provider once you have received the debit card in the post (usually no more than 7 days later).

      Everyone always wishes they’d started earlier! I guess the important thing is to make the changes that you can, and not regret any past spending. Still, being mortgage free in your 40s is very enviable!

  3. Very good post – wish I had looked at this before I dumped 10k into the Post Office account! Looks like I can get a better deal splitting it up into the various accounts above.

    • Hey Mindy, glad you found the post useful! The only downside is that it is more effort than simply sticking it all into the same savings account. But if you can find the extra time to set it all up, it’s worth it in the long run.

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