THE RISE OF THE PSEUDO SAVINGS ACCOUNT
Savings rates have never been lower, which has left many savers desperately searching for decent returns on their cash. It’s probably no surprise that recent figures from the Bank of England show the amount UK households have saved into cash ISAs fell in April, at the fastest monthly rate since the accounts were introduced in 1999. Although there are a few possible reasons as to why this might be, one thing is for sure, the incentive to save in a traditional savings account is waning.
Tesco’s new current account is competitive at 3% AER and means it joins the growing list of high interest paying current accounts which could be a great option for savers. These new pseudo savings accounts have become the go-to accounts at a time when getting a decent return on cash, certainly easy access cash, has been hard to come by.
You can still get a market leading 5% AER with both Nationwide and TSB using their high interest current accounts, which is around three times as much interest than you can currently earn on the best buy easy access savings account, which is paying just 1.65%. Don't be put off by the title "current account" as there is no need to switch from your existing account if you don't want to.
One drawback is that even if you open two accounts, one in a sole name and one in joint names with both providers, the total you can deposit is £9,000 for 5% AER.
Those with larger balances usually find it simpler to open up two Santander 123 current accounts, which will deliver 3% AER on £40,000. Again the second account would need to be in joint names, however, if you have a partner there is nothing stopping them from having an account as well!
Of course there are disadvantages to using a current account as a savings account because they can be very restrictive; restrictive on the amount you can deposit, restrictive due to the account conditions you must abide by to benefit from the higher interest rates - and some come with a monthly fee.
Savers may need to jump through some hoops in order to make current accounts work for their savings, however it is a sign of the times. Savers need to be more creative and look at a range of products to get the best returns; high interest paying current accounts could be just one of them.
Savvy savers will utilise all the weapons in their armoury, from cash ISAs to high interest paying current accounts and fixed rate bonds, in order to squeeze out as much extra interest as possible.
If you are unsure if these accounts are suitable for you or you have any questions about how simple they are to open and meet the account conditions, as always you are welcome to call us for free on 0800 321 3581.