It's still worth boosting your returns
You may be wise to act now to better returns as pressure is likely to increase further on savings rates, as a result of the Term Funding Scheme, which started last month.
It’s no surprise then that more of the popular high interest current accounts are being cut, after the disappointing announcement that Santander is cutting its 3% 123 account by up to 50% from 1 November. This week it was announced that TSB and Lloyds will be cutting their accounts early next year from 5% to 3% and 4% to 2% respectively. The news is incredibly disappointing and another blow for savers, but its worth remembering that the rates being paid even after the cut are still competitive in the current climate.
It is still possible to get decent returns on your savings by choosing high interest paying current accounts and building a portfolio of these. Even after TSB and Lloyds have made their reductions, a couple could earn 3% pa return on £34,000 in the right accounts, assuming rates remained the same, giving a gross interest payment of £1,020 a year! That is not an insignificant amount when you consider there is basically no risk to the capital, as all of this money could be protected under the FSCS (Financial Services Compensation Scheme).
For those looking for an alternative to standard savings accounts, there are several High Interest Current Accounts available, with rates far ahead of the best on offer from standard savings accounts.
Nationwide - FlexDirect Current Account
This account pays the highest interest rate available of 5% AER (4.89% gross monthly).
The interest rate applies from £1 up to a maximum of £2,500 but this is only for 12 months. After a year, the rate will fall to 1% gross/AER.
Any balance over £2,500 will earn no interest. For example, if you have £3,000 deposited, you will earn 5% AER on the first £2,500, but nothing on the remainder, so the overall interest rate would be diluted to approximately 4.17% AER.
In order to earn the headline 5% interest rate above;
A minimum of £1,000 new money must be deposited into the account each month.
You are allowed to open a maximum of four accounts each, but only one sole and one joint will qualify for the 5% rate. So as a couple you could open three accounts and therefore earn 5% AER on £7,500, but the T&Cs apply to each one, so you’d need to deposit £1,000 per month into each.
TSB Bank - Classic Plus Account
This account also pays 5% AER (4.89% gross monthly) but is reducing to 3% AER from 4 January 2017. This rate applies from £1 up to a maximum of £2,000, but when the rate changes, the maximum does to down to £1,500. There is no bonus/enhanced rate, although as with all of these accounts, the rate is variable. Any balance over £2,000 (£1,500 from January) will earn no interest.
In order to earn the interest rates above;
£500 must be paid into the account each month and you must register for internet banking and paperless statements.
You can have one Classic Plus account in your sole name and one in joint names. So as a couple you could currently open three accounts and therefore earn 5% AER on £6,000 but the T&Cs apply to each one, so you’d need to deposit £500 pm into each account.
5% cashback is available on your first £100 contactless payments or payments made using Apple PayTM, from each of your Classic Plus accounts, each month.
For accounts opened before 1 June 2016, cashback is paid up to and including 31 December 2016 and for accounts opened from 1 June 2016, cashback is paid up to and including 30 September 2017.
Tesco Bank - Current Account
The account pays 3% AER (2.96% gross monthly) from £1 up to a maximum of £3,000. 0.00% is paid on balances above £3,000. A maximum of two accounts are allowed, either sole or joint. A maximum of one account is allowed, if you hold a Tesco Bank Clubcard Plus Account.
The real benefit to the Tesco account is not only the 3% interest rate but also the simplicity of the account. Unlike may of its rival accounts, savers don't need to set up direct debits or ensure they deposit a set amount each month.
You can also earn additional clubcard points and money off at Tesco, when you use the card.
Bank of Scotland Vantage
The account pays 3% AER (2.96% gross monthly) from £1 up to a maximum of £5,000.
A minimum of £1,000 of new money to the provider must be deposited into the account each month and pay at least two different Direct Debits from your account each calendar month. Vantage" can be added to a Classic Account or any Added Value Account.
The account must remain in credit to receive interest. Interest rates are tiered as follows: - 1.49% on £1+, 1.98% on £1,000+, 2.96% on £3,000+. 0.00% is paid on balances above £5,000 A maximum of three Vantage Accounts are allowed per brand, per customer (Lloyds Bank - closed to new business, but customers may hold one - or Bank of Scotland).
Lloyds Bank - Club Lloyds Current Account
This account pays up to 4% AER (3.93% gross monthly – reducing to 2% from 8 January 2017) on balances of £4,000 up to a maximum of £5,000. Interest rates are currently tiered as follows: - 1% on £1+, 1.98% on £2,000+, 3.93% on £4,000+. Any balance over £5,000 will earn no interest. From the 8 January interest rates will be 2% AER on all balances up to £5,000.
In order to earn the interest rate above;
A minimum of £1,500 new money must be deposited into the account each month OR a £5 fee will apply (dropping to £3 a month following the interest rate change on the 8 January)
Applicants must set up a minimum of two direct debits per month.
Club Lloyds can be added to a Classic Account or any Added Value Account.
A maximum of two accounts are allowed per person (one sole and one joint), so as a couple you could put £15,000 into three Lloyds accounts – but the T&Cs apply to each one, so you’d need to deposit £1,500 per month into each account and set up at least two direct debits per month from each account to avoid the monthly fee.