By AMY ANDREW
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Current accounts that pay out interest on your balance are few and far between nowadays - but once you know where to look, there are some good options available.
Savings rates are at an all-time low, providing a good incentive for checking out alternative ways to make your money work harder - you could be earning as much as 5 per cent on your in-credit bank balance every month.
We have scoured the small print to round-up the best interest-paying accounts. This page is kept up-to-date throughout the year - bookmark it for the very latest developments.
Free money: We pick the best of the interest-paying current accounts
Nationwide - 5% interest
Nationwide is offering the highest available interest rate on a current account.
Best interest rate
Nationwide's FlexDirect account pays out 5 per cent in-credit interest on balances up to £2,500 for the first year - not bad considering most easy-access savings rates have slid in recent years.
Account holders are also eligible for a 0 per cent overdraft for the first 12 months, and reduced fees of 50p per day for arranged overdrafts after that.
You must pay in a minimum monthly income of £1,000. On the last day of every month Nationwide will calculate the interest you've earned each day and then pay you this interest on the first day of the next month.
Nationwide normally pays this interest 'net' of any tax, which means it deducts any tax due and passes it to the government for you.
Plus, if you’re accepted, you'll be eligible for the Nationwide Select credit card. It gives 0.5 per cent cashback, cheap overseas spending and other perks.
Watch out
If your income drops and you can't pay in £1,000, you won't receive any interest that month.
The 5 per cent interest deal ends after a year, when it drops to just 1 per cent. So it may be worth looking elsewhere after the 12 months for a better return on your money.
You get an interest-free arranged overdraft for that 12 months, but after that a flat rate charge of 50p per day applies, this will be costly for those who regularly go overdrawn compared to a typical interest-charging overdraft.
Unarranged overdrafts cost 50p per day for balances under £10 and £5 per day after that, capped at £60 per month.
If you like to carry out your banking face-to-face, this account might not be good for you because you can only access internet or telephone services as a FlexDirect customer.
This is Money verdict
Accounts that are good for both in-credit and overdrawn customers are few and far between. This account is a market-leading option for the first 12 months, but you may want to switch to another account once the introductory offers have gone.
Lloyds Bank - 4% interest
Best interest-paying current account for rate-chasing savers.
Best for boosting your earnings
The Club Lloyds account is open to both new and existing customers and pays 1 per cent on in-credit balances of between £1 and £1,999, 2 per cent up to £3,999 and 4 per cent up to £5,000 for an unlimited period.
The bank allows one account per person, but couples taking out a joint account could boost their earnings further.
Two single accounts, plus a joint account, with a £5,000 balance in each, would earn £588 of interest a year.
Account holders also have access to a monthly saver account paying 4 per cent, with a £400 monthly paying-in allowance, pay in the maximum to this and you could get £103 a year in interest.
Account holders can choose between a free annual magazine subscription, a Gourmet Society discount-dining card or six cinema tickets a year.
The account also offers a 0.2 per cent rate cut on Lloyds Bank mortgages and comes comes with a £100 fee-free planned overdraft.
Watch out
One drawback is that the bank charges a £5 monthly fee unless £1,500 is deposited into the account each month. On top of this you must set up two direct debits.
Any planned borrowing beyond the first £100 and unplanned overdrafts costs £6 a month. Straying beyond the agreed limit will incur 19.94 (EAR) per cent.
The bank does however offer a grace period for you to correct any mistakes. It gives until 3:30pm the next day before it applies any charges.
This is Money verdict
For most people on average salaries with average outgoings opening three accounts and two regular savers might be a little unrealistic.
But ploughing £15,000 each year into the three accounts and £400 a month into two regular savers could make you £897 in interest. Your total return would be 3.05 per cent - almost matching the best five-year fixed rate savings account on the market while having easy access to your cash.
TSB also offers an interest paying current account
Although Lloyds Bank pays interest on a larger balance, TSB's Plus Account could actually match the earnings if you take out two accounts.
It pays 5 per cent on balances of up to £2,000 earning up to £80 after 20 per cent tax and £60 for higher rate payers. But it has the added bonus of allowing two accounts per person.
A £4,000 balance across two Plus Accounts would benefit from 5 per cent interest - while the interest tiers on the Lloyds account mean that the first £3,999 only receives 2 per cent interest.
TSB also requires a much smaller monthly deposit of just £500.
Find out more about the account here.
The Santander 123 current account is an intriguing proposition, it pays both cashback on spending and interest on balances. But it also charges a fee.
Interest on savings and extras
With savings rates stuck at all-time lows, this account could also be a good alternative to savings accounts - the bigger your balance, the more interest is paid on the account.
To start with, for credit balances of £1,000 or more, the 123 account will pay an AER of 1 per cent on the entire balance.
Once your balance reaches £2,000 or more, you will earn interest of 2 per cent, and if it reaches £3,000, the maximum interest of 3 per cent will kick in. Interest is clocked up on a daily basis and will depend on what you have in your account that day.
If your balance falls below £1,000 on any day of the month - even by £1 - you will earn no interest at all on the entire balance for that day.
Cashback
As well as the potentially high interest benefits, the 123 account could be a smart choice because it really makes your money work for you, thanks to monthly cashback on key services such as mortgage payments, council tax bills, electricity, gas, mobile and home phone, broadband and TV packages.
Explaining how the cashback system works is a little long-winded - but stick with us, it is far from complicated and simply means there are lots of different ways to make money!
If money back on your bills is the reason you want to switch, check first that your supplier is eligible - not all are included in the scheme, particularly smaller energy firms. All bills must also be paid by direct debit.
As you might expect, the 123 aspect of the account name is a running theme. As well as spelling out what interest rates you are entitled to (1 per cent, 2 per cent and 3 per cent) on your balance, it also sets out the cashback theme on services.
This includes 1 per cent on your Santander mortgage (up to maximum monthly mortgage payments of £1,000), and on any spend on water and council tax bills that come out of the account.
Electricity and gas bills generate 2 per cent, with 3 per cent from spending on mobile, home phone, broadband and paid-for TV packages.
Household bills exclude your TV licence, maintenance/insurance contracts, commercial use or commercial mortgages.
Both interest and cashback you earn is paid directly back into your 123 account on a monthly basis.
Watch out
There is a monthly fee of £2, and to be eligible for cashback services you must set up a minimum of two direct debits and pay in at least £500 every month. But to get the most benefit from this account, it's best to retain a credit balance of at least £1,000 - this might be easier if you are a couple sharing the account with two salaries.
This account is really not for you if you often find yourself in the red. Arranged overdrafts are charged at £1 a day, capped at 20 days a month. Unarranged overdrafts shoot up to £5 a day with no cap on unauthorised borrowing.
Santander says that you will not be charged more than £95 in fees for any one month. At the moment they are also offering a free arranged overdraft for four months if you switch to the 123 account using their switcher service. The size of the overdraft will depend on your circumstances.
This is Money verdict
Santander's 123 really does offer something different and rewards both saving and spending. If there is any chance of you slipping into your overdraft, there is little point applying for the account as the combined charges and monthly fee are likely to cancel cash benefits.
Prospective account holders can be new customers or already bank with Santander. However, even if you are won over by the range of benefits included in this account, recent negative reports surrounding Santander's customer service could put you off taking the leap.
Halifax - £5 a month
Halifax offers an alternative for those looking for an interest-paying current account as it offers a cash incentive to join and £5 per month
Regular cash each month and money to sign up
Halifax offers a lump sum, £100, to new customers who take out a Current Account, Reward Current Account or Ultimate Reward Current Account.
If you chose to go for the popular Reward Current Account you can also get £5 every month when you pay in at least £750 monthly.
That’s an extra £60 a year on top of the cash lump sum of £100, which is paid as soon as you apply.
To put this into context, £60 per year on an average £1,000 balance is 6 per cent, whereas on a £2,000 balance it is 3 per cent.
The other bonus with this account is that it comes with a six-month interest-free arranged overdraft should you need it. Depending on your situation this could be up to £5,000.
The bank has recently added a new incentive to its current accounts offering between five and 15 per cent cashback on your shopping in certain stores. There is no cap on the amount you can earn.
Currently there are partnerships with Morrisons, Hertz, Ocado, Glasses Direct, Argos, Urban Outfitters, Homebase, Oasis, O2, Domino’s Pizza, Pets at Home, Marriott, Play.com, Q-Park, New Look and The Body Shop.
Halifax credit card customers will also be able to clock up on cashback, as long as they also hold a current account with the bank.
Existing customers will also be able to access the deals from their online banking account from mid-September according to the bank.
Read more in source : http://www.thisismoney.co.uk/money/saving/article-2313021/Best-paying-current-accounts.html#ixzz31fMSvaWw
