Credit card

This post was originally published in September 2021. It was last updated in June 2024, and was correct at the time of publication.

With the Bank of England Bank Rate holding at 5.25% since August 2023, high street banks have become increasingly competitive when it comes to the interest rates they’re willing to offer on current accounts.

It’s great news for those who might be holding a large amount of cash for day-to-day use, whether that’s direct debits or standing orders.

With this in mind, I wanted to look at the current accounts with interest rates that are worth switching for.

And before you switch, do make sure you check whether there are any switching bonuses you might be eligible for.

Criteria for inclusion

First, some criteria for inclusion.

There are a lot of current accounts paying interest on in-credit balance right now, but some of the highest paying ones are also fee-paying accounts.

So for the list below, only fee-free accounts are included.

Also excluded are accounts that pay a small interest rate, taken as 1% AER here.

Nationwide FlexDirect current account – 5% AER

Nationwide is offering 5% 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 1% AER.

The free account can only be managed online though, and you’ll need to deposit at least £1,000 a month to qualify for the rate advertised.

It also benefits from a fee-free overdraft for the first 12 months – again, this is only for new customers.

Do bear in mind that an overdraft is considered borrowing and will show up on your credit file and can affect your credit score.

For the last couple of years, Nationwide has also paid a £100 Fairer Share Payment to all of its qualifying members.

It’s treated as interest payment, but you don’t have to do anything beyond having an active account with them.

Starling Bank current account – 3.25% AER

Digital-only Starling Bank’s current account pays a 3.25% AER interest rate on in-credit balances of up to £5,000.

It offers free ATM withdrawals worldwide (although the ATM provider might levy a separate fee), and you can create e-debit cards to use online, making it easy to differentiate different spending streams.

It’s not for you if you need to deposit a lot of cash as you can only deposit up to £1,000 for free at Post Office branches around the UK. After that there’s a 0.7% fee.

If all of your transcations are digital then there’s no reason not to go for Starling.

Bank of Scotland Classic current account – up to 3% AER

Bank of Scotland’s Classic 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 1.5% AER interest on the balance. And if the balance is between £4,000 and £5,000, you will earn 3% AER.

On top of this, you can get up to 15% cashback when you use your debit card at selected retailers.

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.

Lloyds Bank Club Lloyds current account – up to 3% AER

The Lloyds Bank 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, if you have between £1 and £3,999.99 in credit, you’ll earn 1.5% AER. Anything between £4,000 and £5,000 earns 3% AER.

You get to choose a reward every year as well, which can be anything from cinema tickets and Disney Plus subscription to a membership to the Gourmet Society*.

You also get cashback when you use your debit card at selected retailers.

Virgin Money M Plus current account – 2.02% AER

Virgin Money M Plus currently pays 2.02% AER up to £1,000.

Note that this is dropping to 1% AER from 1 August 2024 so it may not be worth you switching for the interest rate alone.

There are other benefits though, starting with the fact that it’s a free account and it 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 (£12.50 a month), but unless you’re going to benefit from the travel insurance, gadget cover and breakdown cover, it’s not worth paying extra.

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.