TSB is slashing the table-topping 5% interest rate on its current account later this year – so where can you get the best rate on your balance?
The bank has announced the annual rate of interest paid on the Classic Plus Current Account will change to 3% on balances up to £1,500 from July.
Which? looks at the reasons for TSB’s decision, reveals the best alternative high-interest current accounts and explains how you can reap the benefits of saving with this type of account.
TSB cuts interest rate to 3%
TSB previously hiked the current account interest rate to 5% in May 2018 following the IT meltdown which left nearly two million customers unable to access their account.
To benefit from this increased rate, you had to pay in at least £500 a month into your current account, be registered for online banking and chosen paperless statements and correspondence.
Now TSB has cut the interest rate by two percentage points and is writing to inform its customers of the changes.
It declined to say how many customers would be impacted but said the ongoing 3% rate still compares well with competitors.
The bank is also offering £75 for referring a new customer to the bank, to a maximum of five people – giving you the potential to earn £375.
Best high-interest current accounts
Nationwide’s FlexiDirect current account offers a 5% interest on balances of up to £2,500, which is fixed for one year as long as you pay in at at least £1,000 per month – £500 more than the TSB account.
After 12 months, the rate drops to 1% on balances up to £2,500.
Lloyds Bank’s Club Account and Santander’s 123 account both offer an interest rate of 1.5%.
Tesco Bank had been offering an attractive 3% annual equivalent rate (AER) to current account holders that met certain conditions, but this will now drop to 1% AER.
The change is effective immediately for new customers and existing ones from 14 June.
To earn the highest interest rate, Tesco Bank current account holders had to pay in at least £750 per month and set up three monthly direct debits.
|Account name/Provider||Interest Rate (AER)||Minimum funding per month||Perks/Criteria|
|Nationwide Flex Direct||5%||£1,000||Fee-free overdraft for a year. Pays 5% up to £2,500 for first 12 months, 1% after. Max two accounts per person (one must be joint). Nationwide customers can ‘refer a friend’ to earn £100.|
|TSB Classic Plus||3%||£500||5% on balances up to £1,500, as long as you pay in £500 a month and register for internet banking/paperless statements. Max two accounts (one must be joint).|
|Bank of Scotland Classic Vantage||1.5%||£1,000||1.5% on balances up to £5,000 . Vantage must be added to your account. Must pay in £1,000 a month, stay in credit and pay out two direct debits. Max three accounts per person.|
|Lloyds Bank Club Account||1.5%||£1,500||1.5% on balances up to £5,000. Must pay out two direct debits. Monthly fee of £3 applies in any month you don’t pay in £1,500. Max two accounts (one must be joint).|
|Santander 123||1.5%||£500||1.5% on your entire balance up to £20,000. Must pay in £500 a month, pay out two direct debits, and cover the monthly fee of £5. Max two accounts (one must be joint).|
High-interest current account benefits
With poor rates of interest on savings account, some savers are opening high-interest current accounts to get better returns.
For example, if you put in £2,500 in a Nationwide FlexDirect you would earn £125 in the first year.
Some banks also offer cash incentives for switching current accounts and the process only take seven working days.
The downside is, however, that many banks will apply restrictions to the account such as minimum monthly payments and limit the number of accounts a person can have.
You could set up more than one high-interest current and transfer enough money to meet the monthly requirement via direct debits.
See our video below on how to maximise your returns from high interest current accounts.
Regular saver options
Various regular saving accounts, including the Nationwide Flexclusive which closed to new customers at the weekend, pay 5% AER.
Some might have withdrawal penalties or require savers to have a current account before they can open a new one.
The table below shows the top five regular savings accounts – the links will take you through to Which? Money Compare.
|First Direct regular saver account||5%||Save £25-£300 a month. Must hold a First Direct current account.|
|M&S Bank Monthly Saver||5%||Save £25-£250 a month. Must hold an M&S Bank current account.|
|HSBC regular saver – preferential rate||5%||Save £25-£250 a month. Must hold an HSBC Premier or HSBC Advance account.|
|Kent Reliance one-year regular savings account||3%||Save £1-£500 a month.|
|Virgin Money Regular Saver||3%||Save £1-£250 a month.|
Read more: Best high interest bank accounts