Interest rate is on the rise.
After almost two years of maintaining the Bank Rate at 0.1%, the Bank of England started increasing it at the end of last year to address soaring inflation.
First it was raised to 0.25%, and then a little over a month later it’s raised again to 0.5%.
Considering the Bank of England’s usual stance is slow and steady, it’s an indicator that things are really not looking good.
Unless you’re a saver, in which case things are finally looking up.
Across the board, high street banks are increasing their interest rates in line with Bank Rate. First it was on savings accounts, but now we’re seeing the same increase in current accounts too.
With this in mind, I wanted to look at some current accounts offering interest rates that beat your average savings account – and you don’t have to be a specific age or live in a certain area to apply.
Criteria for inclusion
First, a benchmark – the interest rate to beat.
I’m using the Virgin Money M Plus Saver for this.
It’s a linked instant access savings account – you need to have a Virgin Money current account – that’s currently offering the market-leading 1% AER up to £25,000. After that it drops to 0.5% AER, which isn’t actually that much lower than some of its competitors.
Here are the current accounts beating that rate right now:
Virgin Money M Plus – 5.02% AER
Unsurprisingly, the top current account for interest rates is the companion Virgin Money M Plus, which pays 2.02% AER up to £1,000.
However, if you’re a new customer switching from another bank, you’ll get a bonus rate for the first year, taking the interest rate up to 5.02% AER on the first £1,000.
It’s a free account that benefits from fee-free spending when you’re abroad.
You can also get cashback from certain retailers when you use your debit card.
The same interest rate is available for Virgin Money’s fee paying Club M account (£14.50 a month), although to be honest unless you’re going to benefit from the travel insurance and breakdown cover, it’s probably not worth paying extra.
Chase – 5% AER
The Chase current account offers 5% AER, but there’s a catch – the interest is only applied on round ups for your spending.
So if you spend £1.59 for example, you can choose to round up to the nearest pound and the difference – 41p in this case – is swept into a round up account where the 5% interest is applied.
The round up money is only in the high interest account for a year – you can dip into the pot any time – after which it gets deposited back into your current account and you start again.
Basically, the more you use your debit card, the more opportunities you’ll have to save.
I wrote about some of the other perks offered by Chase here.
Nationwide FlexDirect – 2% AER
Nationwide is offering 2% AER on balances of up to £1,500 for the first 12 months for new customers of its FlexDirect current account.
After that, the interest rate drops to 0.25% AER.
The free account also benefits from a fee-free overdraft for the first 12 months – again, it’s only for new customers.
Do bear in mind that an overdraft is considered borrowing and will show up on your credit files.
The account can only be managed online, and you’ll need to deposit at least £1,000 a month to qualify.
Club Lloyds – up to 1.5%
The Club Lloyds current account is slightly different.
It costs £3 a month to maintain but that fee is waived if you can deposit at least £1,500 a month.
In terms of interest, everything between £1 and £3,999.99 earns 0.6% AER while anything between £4,000 and £5,000 earns 1.5% AER.
You get to choose a reward every year as well, which can be anything from cinema tickets to a membership to the Gourmet Society*.
You also get cashback when you use your debit card at selected retailers.
Bank of Scotland – up to 1.5%
Bank of Scotland’s current account is completely free and you can add the Vantage benefit to your account at no extra cost.
Under the terms of Vantage, when your account is in credit between £1 and £3,999.99, you’ll get 0.6% AER interest; and if the balance is between £4,000 and £5,000, the money will earn 1.5% AER.
However, you’ll have to pay in at least £1,000 a month and your account must be in credit.
You also have to pay out at least two direct debits a month.
By the way, some of the current accounts mentioned above have switching offers on right now (updated this week) so you can get some free cash – or other benefits – if you switch.