Starling Bank boosts current account interest to 3.25% - how does it compare?
Starling Bank is trying a new tactic to attract current account customers. Instead of cash bonuses, it's offering a higher 3.25% interest on its current account balances, including cash you've put aside for your kids in the Kite Space.
While it's not a savings account, it works in much the same way as most easy-access products, which allow you to withdraw cash at any time without a penalty. But with rates currently enjoying record highs, are you better off looking elsewhere to grow your cash?
Here, Which? takes a closer look at what Starling's current account has to offer and reveals how other banks compare.
What's happening to Starling's current account?
Starling Bank - a Which? Recommended Provider - has boosted the rate on its current account, which has no monthly subscription fee and allows free spending abroad, from 0.05% to 3.25% AER.
Existing and new customers will have the interest rate applied to the first £5,000 held in both personal and joint current accounts.
Deposits held in separate pots called 'spaces' - which customers use to achieve individual financial goals - will also benefit. That includes the bank's Kite Space for children aged 6 to 15 - this is linked to an adult account and comes with a debit card.
While most banks don't pay interest on current account balances, some require you to pay a subscription fee or move money into a separate savings pot to unlock competitive rates.
Starling Bank's interim chief executive, John Mountain, says this 'friction' means many people end up missing out on the interest on their main balance.
'We wanted to change this and ensure that everybody benefits by paying interest on the first £5,000 in their current account,' he adds. 'This is something that all big banks should consider doing.'
- Find out more: best banks 2023
How does it compare to easy-access accounts?
If the aim is to get the best return possible, you may want to open an easy-access account instead.
Not only do they tend to have higher interest rates but they often offer the same amount of flexibility to make deposits and withdrawals as current accounts.
The table below shows the best rates on offer for restriction-free adult and children's easy-access accounts.
| Adult easy-access | AER | Children's easy-access | AER |
|---|---|---|---|
| Shawbrook Bank Easy Access | 5.11% | Yorkshire Building Society One Day Account | 4.55% |
| Beehive Money Limited Issue Easy Access | 5.1% | Hinckley & Rugby Building Society | 4.45% |
| Family Building Society Online Saver | 5.04% | Marsden Building Society Junior Saver | 4.35% |
| Skipton Building Society Bonus Saver | 5.04% | Kent Reliance Demelza Children's Savings Account | 4.3% |
| Kent Reliance Easy Access Account | 5.01% | Monmouthshire Building Society Young Saver | 4.3% |
Source: Moneyfacts. Correct as of 4 October 2023, but rates are subject to change.
As you can see, adult easy-access rates offered by all the top five providers in our best buys table are significantly higher than Starling's current account deal. There is no account offering less than 5% AER and Shawbrook Bank leads the pack with 5.11% AER.
It's a similar story for children's easy-access accounts. The best deal from Yorkshire Building Society is 4.55% - that's 1.3 percentage points more than the rate offered by Starling on its Kite account.
Before opening one of these savings accounts, remember to make sure there are no restrictions on access and your balance can be managed online or by app, so you can quickly make withdrawals.
If you don't need money in the near future, and have an emergency fund in place, consider putting savings in fixed-rate accounts instead. The top rate offered for a one-year fix is currently 6.2% AER from National Savings & Investments, according to Moneyfacts data.
- Find out more: best savings accounts
Consider other high-interest current accounts
Starling isn't the only provider offering a high-interest current account.
Nationwide's FlexDirect account, for example, pays 5% AER - although that's only on deposits up to £1,500 and for the first 12 months. After a year, the rate drops to 0.25%. It also requires a minimum monthly deposit of £1,000.
While Kroo offers 4.35% on deposits of up to £85,000 and Santander's Edge Up account gives 3.5% interest on balances up to £25,000.
Thanks to this month's new deal, Starling's Kite product offers the highest rate of interest for a children's current account.
One of the biggest drawbacks to using a high-interest current account for savings is that accounts will only pay interest on balances up to a certain amount.
To make sure there's no 'excess' money sitting in accounts earning little or no interest, you should consider moving that cash into a different high-interest current account or choose a market-leading savings product.
- Find out more: best high-interest bank accounts
Other current account perks
In the battle to attract new customers, some banks offer free cash offers to people who switch to their current account.
Nationwide Building Society recently launched a £200 bonus, Lloyds Bank announced a £175 free cash deal and TSB has a £150 offer. First Direct - a Which? Recommended Provider - also continues to offer a £175 switching bonus.
Several providers also offer cashback perks on spending, such as Chase, Halifax, Lloyds Bank, Santander, the Co-operative Bank and Virgin Money.
But you'll need to be quick if you want to take advantage of these deals. For example, NatWest recently withdrew a £200 switching deal.
Switching offers will depend on certain terms and conditions being met, which are set by individual providers.
- Find out more: how to switch your bank account
