Are you earning interest on your current account?
When we think about looking after our money, it’s easy to focus on finding savings and investment products.
Setting up an extra standing order to squirrel away a bit more each month feels like the right New Year’s resolution to commit to.
But the thought of changing current account, and possibly changing all our direct debits and standing orders – and telling everyone who’s got our bank details for repaying their share of bills and gifts – falls into the Too Hard basket.
But that inertia is costing us serious money.
Money buried in unused current accounts
We’re so reluctant to tidy up our current accounts that tens of thousands of us have money lying unused in long-forgotten current accounts.
- Research by MoneySupermarket says that £4.2billion is languishing in forgotten accounts nationwide: which is an average £411 for each of us.
- MoneySavingExpert puts the figure at £850 million in old bank and building society accounts.
That may be enough motivation to persuade you to track down any cash lying in a dormant current account via the free banking industry tracing site My Lost Account.
And then you can get all your current account cash earning money for you.
Current accounts that will earn cash for you
After 2009, when interest rates fell to record lows, many current accounts stopped paying interest altogether. And some of us may pay fees to the bank for our current account services.
(Customers of exclusive Coutts, the Queen’s bank, pay a princely £900 a year to run their current accounts.)
But the fact is that current accounts are healthy earners for banks and building societies. The institutions know that if they handle our monthly salary and bill-paying transactions, they’re more likely to get our business for loans and mortgages and saving plans.
And any overdraft charges on current accounts are healthy earners for them as well.
So banks are offering some very tempting sweeteners to help us overcome our switching inertia. In addition to cash-in-hand incentives of up to £125 for customers transferring over, some banks offer “high interest” current accounts.
How much can you get?
- In contrast to no interest at all, any interest rate counts as “high”. Santander is currently offering 1.5% AER (variable) on their 1|2|3 Current Account on balances of up to £20,000. Which is better than some instant-access savings accounts in the market.
- And that comes with an additional sweetener of up to 3% cashback on household bills paid out of the account.
- The Nationwide FlexDirect Current Account offers a really meaty 5% AER (fixed for a year), which is almost double the best saving account rates you’ll find on five-year fixed deposit accounts.
- They’re only offering it on balances of up to £2,500, and you may have to re-think after a year. But there’s a good chance that once you’ve made your first switch, you’ll get into the habit of shopping around for the best deals, and find it less of a drama to switch again.
Weigh up the pros and cons
You need to weigh up the maximum you could be earning in interest, plus the value of any other benefits (travel insurance or breakdown cover) against any monthly fees, how much you need to pay into the account each month, and any requirement to pay a specified number of direct debits out of the account.
But some payment in return for your current account custom is better than no payment at all.