WHICH? MONEY INVESTIGATES HIGH-INTEREST CURRENT ACCOUNTS
Cashing in on current accounts TOM CALVER AND JO LANGENHAN EXPLAIN HOW TO PLAY THE SYSTEM
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addled with rockbottom savings rates, nervous about peer-to-peer lending or lacking a lucrative portfolio? There’s still a way to make your money grow. Despite interest-rate cuts in the past year, the best current accounts on the market give you the chance to secure risk-free, inflation-beating returns – and the rewards can be handsome if you know how to play the game.
WHAT YOU’LL LEARN We’ve analysed the currentaccount market to establish the true value of the interest and rewards on offer. Here, you’ll learn: > How to maximise interest by opening several current accounts > How interestpaying current accounts compare with traditional savings options > What incentives banks are offering to tempt new customers
22 | September 2017
Thanks to the Current Account Switch Service (CASS), you can now move to a better deal in just seven working days. But millions of us are still failing to take advantage of this service, even though banks are dangling cash rewards and attractive interest rates in front of prospective customers. At present, the best currentaccount rates easily beat traditional savings options. Putting £5,000 in the best one-year fixed-rate savings account on the market, for example, would make £101 in interest. But putting half of that (£2,500) into a Nationwide FlexDirect current account would increase returns by 24%, giving you £125 in year one. Here, we show you how, by switching, juggling several current accounts and teaming up with a partner, you can boost returns and bag some pretty generous rewards.
EASY AS 123 Six current accounts pay interest on credit balances. Santander’s 123 remains the best for those with higher balances, offering 1.5% on up to £20,000. Once the £5 monthly account fee has been deducted, this gives a maximum annual return of £240. This doesn’t include the cashback that account holders can get on their household bills, which is payable at 1% on water and council tax bills, 2% on gas and electricity, and 3% on mobile, home phone, internet and TV packages. Using figures for average household expenditure from the Office for National Statistics (ONS), we estimate that a typical household could generate a further £71 a year using the 123 account.
GENERATING INTEREST Nationwide’s FlexDirect account offers a generous 5% interest on balances up to £2,500, delivering a maximum return of £125 – but only in the first year. After that, the rate drops to 1%, leaving you with a paltry £25 in subsequent years. Both Lloyds’ Club Lloyds and Bank of Scotland’s Vantage accounts pay 2% on up to £5,000, giving you a maximum annual return of £100. Tesco Bank offers 3% on £3,000, and TSB’s Classic Plus gives 3% on £1,500, providing maximum returns
of £90 and £45. TSB also offers various rewards, such as £5 a month for regular spending.
MEETING MINIMUM REQUIREMENTS However, choosing the best reward current account isn’t as simple as picking the one with the highest interest rate – you’ll need to make sure you meet certain criteria, too. For example, with the exception of Nationwide’s FlexDirect and TSB’s Classic Plus accounts, you’ll need to have two or three direct debits in place. There’s also a matter of meeting the minimum monthly pay-in, which ranges from £500 for Santander and TSB to £1,500 for Lloyds. This isn’t usually a problem if you’re employed, as you can make sure your salary is paid into your reward account each month. For those who want to keep things simple and get the most from a single account, our flowchart (opposite) simplifies the decisionmaking process. For more advanced account trickery, though, read on to the next section.
PLAYING THE SYSTEM The big drawback with interestpaying current accounts is that the amounts on which interest is payable are much smaller than with savings accounts – as little as £1,500 in the case of TSB. which.co.uk
WHICH? MONEY INVESTIGATES HIGH-INTEREST CURRENT ACCOUNTS
HOW TO MAKE HIGH-INTEREST ACCOUNTS WORK FOR YOU Thanks to the personal savings allowance, you can now earn £1,000 in interest from your savings – or £500 if you’re a higher-rate taxpayer – without having to pay a penny in tax. Here’s how to use current accounts to boost your returns. CHOOSING AN INTEREST-PAYING CURRENT ACCOUNT
JUGGLING SEVERAL ACCOUNTS
All interest-paying current accounts require you to pay in at least £500 a month. Follow the chart below to work out which one is right for you. The highlighted figures are the maximum returns after a year. Bear in mind that other accounts might offer better returns if you have high monthly bills but low balances.
This example shows you how to maximise returns on a £6,500 lump sum by opening three high-interest current accounts.
Can you pay out least 2 direct debits?
1
Can you pay in £1,000 each month?
YES
Can you pay in £1,000 each month?
NO
Open Halifax Reward account with £1,000a 2
YES
Is your balance higher than £10,000?
NO
Is your balance higher than £12,300?
NO
YES
YES
MAX £300a +CASHBACK
Do you have a balance higher than £7,500 and higher than average bills?*
NO
MAX £125 (YEAR ONE)
NO
NO
FlexDirect
3
MAX £125 (YEAR ONE)
Do you have a balance higher than £5,000 and higher than average bills?*
YES
YES
NO
YES
Open Nationwide FlexDirect account with £2,500 b
Open Tesco Bank account with £3,000c 4
Transfer £1,000 from Halifax’s Reward account to Nationwide’s FlexDirect account once a monthd
MAX £45 +REWARDS
Can you pay out 3 direct debits?
NO
MAX £90 FlexDirect
YES
5
Transfer £1,000 from Nationwide’s FlexDirect account to Tesco Bank account once a monthe
Current Account
* ONS data suggests monthly bills for the average household are as follows: £33 on water, £94 on energy, £40 on mobile phone, £29 on landline/broadband, £18 on TV package and £128 on council tax.
CURRENT AND SAVINGS ACCOUNTS COMPARED The table shows how much interest you’d earn on different deposits with interest-paying current accounts versus the market-leading instant-access and one-year fixed savings accounts CURRENT ACCOUNTS
Return on
£1,000 Return on
£3,000 Return on
£5,000 Return on
£20,000
which.co.uk
TSB Classic Plus
Ulster Bank eSavings
Al Rayan Bank 1yr Fixed Deposit
£15
£30
£30
£13
£20
£25
£45
£90
£45
£38
£61
£125
£25
£75
£90
£45
£63
£101
£125
£25
£300
£90
£45
£250
£404
Lloyds Club Lloyds
£20
£20
£50
£10
£60
£60
£125
£100
£100
£100
£100
a £5 monthly account fee applies.
SAVINGS ACCOUNTS Tesco Bank Current Account
Bank of Scotland Vantage
6
Transfer £1,000 from Tesco Bank account to Halifax’s Reward account once a monthf
Nationwide Nationwide Santander a FlexDirect FlexDirect 123 (year one) (year two+)
You’d earn £326 after one year by following steps 1 to 6 a Annual reward of £36 + £75 opening incentive = £111 b Interest earned = £125 c Interest earned = £90 d Assumes monthly transfer from Halifax to Nationwide is on day one e Assumes monthly transfer from Nationwide to Tesco Bank is on day two f Assumes monthly transfer from Tesco Bank to Halifax is on day three
September 2017 | 23
s
CASHBACK AND INCENTIVES CASH SWITCHING INCENTIVES
£125
£125
Gift card
CO-OP
Cashback on bills calculated using ONS data for average monthly household bills: £33 (water), £94 (energy), £40 (mobile phone/data), £29 (landline/broadband), £18 (TV package) and £128 (council tax)
4%) %)
WHICH? MONEY INVESTIGATES HIGH-INTEREST CURRENT ACCOUNTS
M&S BANK
Extra rewards: £5.50 a month Requirements: £800 monthly pay-in, 4 direct debits
Extra rewards: £5 monthly gift card top-up in first year Requirements: £1,000 monthly pay-in, 2 direct debits
£100
£100
NATIONWIDE
FIRST DIRECT
Extra rewards: 5% AER on balances up to £2,500 Requirements: You must be referred by a friend, or have referred a friend yourself. £1,000 monthly pay-in to qualify for interest.
Requirements: £1,000 monthly pay-in to avoid account fee
£75 HALIFAX
Extra rewards: £3 a month Requirements: £750 monthly pay-in, 2 direct debits
CASHBACK/REWARDS How much you can earn in a year TSB Classic Plus Barclays Blue Rewards Danske Bank Reward Co-op Bank Everyday Rewards Santander 123 Lite NatWest/RBS Reward Halifax Reward
£120 £84 £84 £66 £59 £58 £36
TSB £120 a year cashback (if you pay 2 direct debits and 20 debit card spends).
Santander Up to 3% cashback on bills (123 Lite, £12 annual fee).
Barclays Earn £84 (£3 monthly account fee applies).
NatWest/RBS 2% cashback on household bills (£2 monthly fee).
Danske Bank Earn £84 (£2 monthly account fee applies). Co-op Bank Earn up to £66 a year on debit card spends.
24 | September 2017
Halifax Earn £3 each month you stay in credit, pay in £750 and pay two direct debits.
If you’re part of a couple, the simple solution is to open more than one account with the same bank. Providers typically set a maximum of two accounts per person, provided that one is a joint account. This means couples can effectively triple their interest. For example, if you and your partner have a combined deposit of £60,000, you’d earn a total of £720 after a year (after fees) by splitting it evenly across three Santander 123 accounts (one each, plus one joint). Alternatively, anyone who’s willing to put in a bit of extra time and effort could boost their returns by opening high-interest current accounts from different providers. The example on p23 shows you how (see ‘Juggling several accounts’). First, you open the Halifax Reward account, which pays £75 for switching and a further £3 a month if you stay in credit, generating £111 after a year. You then put £1,000 in this account. This will be used to circulate around your other high-interest current accounts, returning back to the Halifax Reward account each month. Let’s imagine you have a further £5,500 to play with and you open Nationwide’s FlexDirect account with £2,500, and Tesco Bank’s Current Account with £3,000 – earning you £125 and £90 respectively in year one. Each month, you transfer £1,000 from Halifax to Nationwide and then transfer £1,000 from Nationwide to Tesco Bank. This ensures you meet the minimum monthly funding criteria (£1,000 TSB Classic Plus Bank and £750 respectively). Tesco Barclays Blueat Rewards requires you to pay out least three
direct debits each month. For Halifax, it’s two. Finally, transfer £1,000 from Tesco Bank to your main Halifax account. By repeating these steps each month, you would earn an impressive £326 after a year. Note that a credit search is carried out whenever you open a bank account, and opening multiple accounts in quick succession can have a negative impact on your credit file. This strategy may not be right for you if you’ve got a big credit application, such as a mortgage, coming soon.
ALTERNATIVE ACCOUNTS The battle for current-account customers isn’t limited to interest on credit balances – many banks are offering cashback rewards and switching incentives to entice you. Nationwide, for example, runs a potentially lucrative ‘recommend a friend’ scheme. If you have a friend who’s an existing customer, ask them to refer you and you’ll both earn £100 when you switch. You can then refer up to five people in a year, giving you the chance to earn up to £600. TSB will pay up to £120 in cashback a year, provided that at least two direct debits and 20 debit card spends are made (the offer ends on 30 June 2018). NatWest/RBS and Santander offer 2% and up to 3% respectively on a selection of household bills – based on ONS averages, this would give £58 and £59 in cashback after a year after monthly fees have been deducted. If you’re unable to meet the set requirements on high-interest accounts, these accounts could be your best alternative.
Danske Bank Reward Santander 123 Lite Co-op Bank Everyday Rewards
>> TAKE ACTION M&S Current
ON WHICH.CO.UK
NatWest/RBS Reward
l Best bank accounts:
Halifax Reward
0 HELP? 20 40 WHERE CAN I GET
The Which? Money Helpline is a team of experts who can help you understand your options when it comes to maximising savings interest. Call them on 01992 822848.
WHERE CAN I FIND MORE? IN WHICH? MONEY l Boost your savings, Jul 2017 p22 l Fixed savings accounts, Apr 2017 p14 l Best and worst banks, Feb 2017 p22
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which.co.uk/bankaccounts 100 120
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l Bank customer survey:
which.co.uk/bestbanks l How to switch: which.co.uk/bankswitching
OUTSIDE OF WHICH? l How to switch your account: currentaccountswitch.co.uk l Office for National Statistics: ons.gov.uk l Bank complaints: financial-ombudsman.org.uk
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