Advertisement

Returns for savers still falling. Are current accounts the answer?

Returns for savers still falling. Are current accounts the answer?
Date of Publication: Wednesday, 30 October 2013 12:23
Last Updated: Monday, 31 March 2014 12:26

Interest returns on easy-access accounts are pretty dismal at the moment. So, all things considered, are current accounts now the answer?

 

Savers are still struggling to find decent returns on their savings, following another round of cuts and withdrawn accounts.

 

Rates with National Savings & Investments (NS&I), the Treasury's savings arm, were slashed in September following a wave of interest from beleaguered savers. The Direct ISA – previously the market leader for balances under £40,000 – was reduced from 2.25% to 1.75% following an influx of deposits.

 

The market-leading instant access ISA from First Direct, which has offered 3.00% on nest eggs worth £40,000, is to fall to just 2.00% in November 2013.

 

And with the closure of Tesco's 2.00% cash ISA to new customers, the NS&I account is likely to retain this high level of demand, which may lead to further cuts in the near future.

 

The market for fixed-rate bonds is showing some signs of improvement. Recent increases to longer-term fixes include the 4-year bond from Vanquis Bank, which improves to 2.86%, and Shawbrook Bank, which has improved its 3-year bond to a market-leading 2.65%.

 

But inflation-busting accounts remain at a premium. The 7-year bond from the Skipton Building Society (3.50%) is one of the last surviving accounts to keep pace with the rising cost of living. Savers will need to invest a minimum of £10,000 and will be without access to their cash until the end of the decade.

 

Leeds Building Society also offers an alternative long-term option, with a five-year fixed rate ISA at 3.05%. Savers who prefer the flexibility to withdraw some of their cash over this term can opt for the lower-returning ISA, at 2.90%, which allows a withdrawal of up to 25% of the funds without penalty. (Read more about the Leeds ISA here.)

 

Skipton Building Society

Skipton's 7-year bond (3.50%) is one of the few options left for savers to match inflation.

 

Current Accounts – the New Interest Option?

The latest round of cuts might encourage savers to look towards current accounts for their rewards. Banks are now beginning to offer attractive interest rates or cash incentives to those who switch current accounts using the new 7-day service.

 

So, what's on offer?

 

Santander Logo

The Santander 123 Current Account, which has attracted almost a million new customers in 2013, offers tiered interest of up to 3% for credit balances exceeding £3,000.

 

(See our 123 Current Account review here.)

 

Nationwide Logo

Nationwide, meanwhile, offers interest on two current accounts. The free FlexDirect account offers a stunning 5.00% interest on balances up to £2,500 for the first 12 months, before reverting to 1%.

 

(See our FlexDirect account review here.)

 

The FlexPlus account, the society’s first paid-for account, offers 3.00% on balances up to £2,500. After tax, the maximum interest return is £60 for the year, which effectively covers half the cost of the account’s comprehensive insurance package.

 

(See our FlexPlus account review here.)

 

TSB LogoThe new TSB Plus account, available from 31 March 2014, offers 5% on balances up to £2,000. Unlike Nationwide's FlexDirect, there is no predetermined time limit on this interest premium. Customers are also not required to switch bank accounts to receive the perk.

 

(See our TSB Plus account review here.)

 

Several banks are offering cash incentives to switch current accounts, with the new seven-day switch system making it far easier to initiate a transfer.

 

First Direct is offering £125 to switch to its current account, which is considerably more than most savers can expect to receive in annual interest.

 

At the average easy-access savings rate of 0.61%, it would take a balance of £5,000 over 4 years to achieve this amount in interest, even before tax reductions are accounted for.

 

So, while it may seem unconventional, current accounts must now be seen as a viable alternative for those hoping to make the most from their cash.

 

(Find out more about the new current account switch service here!)

 

Current Account Switch Service

 

Keith McDonald

Which4U Editor

Thanks for reading! Follow us on Facebook and Google+ for updates. For the chance to win £500 in vouchers, enter our competition.

Wednesday, 30 October 2013 12:23
Bookmark and Share

Make a comment on this article

Comment
Please enter the following letters in the box below.
We're very sorry for this but we just need to ensure
that you are not a computer.

Top 5 Current Accounts

Provider
AER
Min Bal
O/D Rate
O/D Buffer
Apply
View Full Table >
3.00%
£1
0%
£100
0%
£1
No Offer
No Offer
3%
£500
No Offer
N/A
No Offer
3%
£500
No Offer
N/A
No Offer
0%
£1
0%
for 4 mths
£1,200

Nationwide FlexPlus Account

Nationwide
  • £10 per month gets you the following benefits:
  • Get 3.00% variable on balances up to £2,500 (no interest for balances £2.5k+)
  • 3 month Fee Free overdraft
  • Commission Free Cash Withdrawals Abroad
  • VISA debit card with every account
  • Travel Insurance - Worldwide travel insurance, including winter sports, golf, business and wedding cover for you and your family.
  • Mobile Phone Insurance - Worldwide cover if your phone's lost, stolen, or damaged.
  • Breakdown Cover - UK & European breakdown cover for you in any private car and also anyone driving your car with your permission.
  • Extended Warranty - Get an extra 12 months warranty for eligible household electrical goods.
  • Identity Theft - Get help and support if your personal data's compromised or your cards are lost or stolen.

Nationwide FlexAccount

Nationwide
  • VISA debit card with every account
  • The age restriction to open the account is 18
  • Manage your account online with an excellent internet banking service.
  • Three-month interest-free overdraft when you switch to FlexAccount
  • Free day to day banking
  • Voted Best Overall Online Provider 2009 by Your Money

Santander 123 Current Account

  • The New 123 Current Account pays cashback on household direct debits
  • 1% Cashback on water and council tax
  • 2% Cashback on electricity and gas
  • 3% Cashback on mobile, home phone, broadband and paid for TV packages
  • New 123 Current Account pays also pays in-credit interest
  • 1% AER on the entire balance, once the customer’s balance is £1,000 or over
  • 2% AER on the entire balance, once the customer’s balance is £2,000 or over
  • 3% AER on the entire balance, once the customer’s balance is £3,000 or over (up to £20,000)
  • £5 per month.
  • Your overdraft fee will be 19.9% EAR plus an unauthorised fee of £1 per day.
  • Get a cheque book and a Visa Debit card. You can use your Visa Debit card in shops wherever you see the Visa symbol and at virtually every cash machine in the UK and many worldwide. It also acts as a £100 cheque guarantee card
  • Get 4 Months Fee-Free Arranged Overdraft when you use the Current Account Switch Service to move your current account to us and receive a Defaqto 5 star rated service.
  • Access to your money 24 hours a day 7 days a week through our e-banking service, 750+ branches, 24-hour telephone banking service, LINK cash machine network or even by post
  • You must setup a minimum of 2 active direct debits
  • You must deposit at least £500 per month
  • You are able to Withdraw upto £300 a day
  • This account is open to NEW and EXISTING Santander customers aged 18 and above (must be UK resident)

Santander 123 Current Account

  • The New 123 Current Account pays cashback on household direct debits
  • 1% Cashback on water and council tax
  • 2% Cashback on electricity and gas
  • 3% Cashback on mobile, home phone, broadband and paid for TV packages
  • New 123 Current Account pays also pays in-credit interest
  • 1% AER on the entire balance, once the customer’s balance is £1,000 or over
  • 2% AER on the entire balance, once the customer’s balance is £2,000 or over
  • 3% AER on the entire balance, once the customer’s balance is £3,000 or over (up to £20,000)
  • £5 per month.
  • Your overdraft fee will be 19.9% EAR plus an unauthorised fee of £1 per day.
  • Get a cheque book and a Visa Debit card. You can use your Visa Debit card in shops wherever you see the Visa symbol and at virtually every cash machine in the UK and many worldwide. It also acts as a £100 cheque guarantee card
  • Get 4 Months Fee-Free Arranged Overdraft when you use the Current Account Switch Service to move your current account to us and receive a Defaqto 5 star rated service.
  • Access to your money 24 hours a day 7 days a week through our e-banking service, 750+ branches, 24-hour telephone banking service, LINK cash machine network or even by post
  • You must setup a minimum of 2 active direct debits
  • You must deposit at least £500 per month
  • You are able to Withdraw upto £300 a day
  • This account is open to NEW and EXISTING Santander customers aged 18 and above (must be UK resident)

Santander Everyday Current Account

  • A simple and straightforward current account that helps make managing your money easy and convenient.
  • 0% EAR (variable) overdraft rate.
  • No Daily Arranged Overdraft Fees for the first 4 months when you switch to us (depending on circumstances. See representative example).
  • After 4 months the Daily Arranged Overdraft Fee will be 50p per day capped at 20 days each monthly statement period (if you don't switch these Daily Arranged Overdraft Fees will start from when your account is opened.)
  • Access to our dedicated Switcher Service - It is important that you feel confident about switching to us and what is involved. Click here for full details of our simple three-step process.
  • Easy access to your account 24 hours a day with our internet and phone banking service. Plus you have access to over 1,300 Santander branches.
  • Get 4 Months Fee-Free Arranged Overdraft when you use the Current Account Switch Service to move your current account to us and receive a Defaqto 5 star rated service.
  • Withdraw upto £300 a day.
  • No interest is paid on your balance.
  • You must be aged over 18 and live permanently in the UK.

Santander 123 Mini Current Account

  • The 1|2|3 Mini Current Account is designed to provide a safe environment to learn money management and take the first steps towards financial responsibility for those aged between 11 and 18.
  • With the 1|2|3 Mini Current Account you'll get:
  • Rewarding interest rates paying 3% AER/2.96% gross (variable) on balances from £300 up to a maximum of £2,000.
  • £100+ = 1% AER
  • £200+ = 2% AER
  • £300 - £2000 = 3% AER
  • 24/7 access to your account via Online, Mobile and Telephone Banking.
  • Access nationwide via our branch network.
  • Free text and email alerts about your account.
  • The choice of a cash card or a Visa debit card.

Santander 123 Mini Current Account

  • The 1|2|3 Mini Current Account is designed to provide a safe environment to learn money management and take the first steps towards financial responsibility for those aged between 11 and 18.
  • With the 1|2|3 Mini Current Account you'll get:
  • Rewarding interest rates paying 3% AER/2.96% gross (variable) on balances from £300 up to a maximum of £2,000.
  • £100+ = 1% AER
  • £200+ = 2% AER
  • £300 - £2000 = 3% AER
  • 24/7 access to your account via Online, Mobile and Telephone Banking.
  • Access nationwide via our branch network.
  • Free text and email alerts about your account.
  • The choice of a cash card or a Visa debit card.