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27 Jul 2024

Should you keep your savings in a current account?

Which? assesses which accounts offer the best deal for savers right now

Matthew JenkinSenior writer

Today's savings rates may not be hitting the record highs seen in 2023, but unlike this time last year, every top savings deal can now beat inflation. So why do so many people still stash all their cash in a current account?

New research by app-only bank Chase found that 57% of people prefer to keep the majority of their money in a current account, with one in 10 (13%) saying it's because the account already offers interest on holdings (13%).

But can rates on current accounts compete with those offered by the best savings deals? Which? takes a look at how the two types of accounts compare and the pros and cons of both.

Can current accounts compete on interest rates?

While most banks don't pay interest on current account balances, there are a handful that do. And because they work in much the same way as most easy-access savings products, which allow you to withdraw cash at any time without a penalty, they can be an attractive option to customers who want to keep their money in one place.

But with rates on some savings accounts still enjoying highs of more than 5% AER, are you better off looking elsewhere to grow your cash?

The table below compares the best high-interest current accounts with restriction-free easy access deals.

Current account	AER	Easy-access account	AER
Nationwide Building Society FlexDirect	5%	Cahoot Sunny Day Saver	5.2%
Kroo Bank Current Account	4.35%	Cynergy Bank Online Easy Access Account	4.94%
Santander Edge Up	3.5%	Oxbury Bank Personal Easy Access Account	4.94%
Starling Current Account	3.25%	Monument Bank Easy Access Account (Raisin exclusive)	4.91%
Bank of Scotland Classic with Vantage	3%	Wealthify Instant Access Savings (powered by ClearBank)	4.91%

Source: Moneyfacts. Correct as of 26 July 2024, but rates are subject to change.

As you can see, easy-access rates offered by all the top five providers in our table are higher than those offered by current accounts.

While there is only a 0.2 percentage point difference between Nationwide's FlexDirect product and Cahoot's Sunny Day Saver, the gap between rates on other accounts is much wider. For example, interest paid on Wealthify's Instant Access Savings product is almost two percentage points more than Bank of Scotland's high-interest current account deal.

That can make a big difference to how hard your money works over a year. Assuming you don't make any withdrawals and interest is calculated and compounded monthly, £5,000 in a savings account paying 4.91% AER would earn £251 in interest after 12 months compared to £152 in a current account with a rate of 3%. That's £99 extra you could make simply by opening an easy-access account.

Find out more: best savings accounts

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Current accounts vs easy access saving accounts

While the rate of interest is a big factor when deciding where to invest your nest egg, there are other important factors to consider. For example, how simple is it to make deposits and withdrawals? And how much cash do you need to open an account?

To help you make the right choice, we've weighed up the pros and cons of saving using both types of accounts.

High-interest current accounts

Pros	Cons
Usually simple to open and manage online or by app. No restrictions on withdrawals. Banks often offer cash incentives to open the current account. You can often unlock exclusive rates on savings accounts with the same provider.	Accounts will often only pay interest on balances up to a certain amount. Interest is sometimes only given for a limited period of 12 months. There are often monthly fees associated with the current account. There may be a minimum monthly deposit requirement. You may have to set up direct debits to open the current account. Some accounts have tiered interest, where you get a higher rate for having a higher balance. Most current accounts do not offer interest, so your choice of product and provider is limited.

Pros

Cons

Usually simple to open and manage online or by app.
No restrictions on withdrawals.
Banks often offer cash incentives to open the current account.
You can often unlock exclusive rates on savings accounts with the same provider.

Accounts will often only pay interest on balances up to a certain amount.
Interest is sometimes only given for a limited period of 12 months.
There are often monthly fees associated with the current account.
There may be a minimum monthly deposit requirement.
You may have to set up direct debits to open the current account.
Some accounts have tiered interest, where you get a higher rate for having a higher balance.
Most current accounts do not offer interest, so your choice of product and provider is limited.

Find out more: high-interest current account reviews

Easy access accounts

Pros	Cons
Many high-interest deals offer unlimited withdrawals. No minimum monthly deposits. You don't need a huge lump sum to open. No monthly fees.	Some accounts limit how many withdrawals you can make each year without losing interest. Rates are variable, meaning they can go up or down at any time. Withdrawals with some online-only or phone-operated accounts may take a few days to go through. Offers of introductory 'bonus' interest rates might drop dramatically after 12 months.

Find out more: how to switch your savings account

How to choose the right account for you

When deciding the best home for your savings, make sure you shop around.

Our guides to finding the best savings account and high-interest current account can help you make an informed decision on not only where to get the best rate but also what caveats may be hidden in the small print to watch out for.

They also show how banks and building societies measure up according to customers and reveal those that have met our strict criteria to become a Which? Recommended Provider.

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