A CURRENT account is crucial for most people wanting to spend and receive money and some will even pay interest on your balance.
Here is how to find the best high interest current account.
What is a high interest current account?
Standard current accounts typically pay low to no interest at all.
That means any spare cash you leave in your account at the end of the month after paying your bills isn't growing.
As the name suggests, a high interest current account lets you earn interest on your balance.
There are usually requirements such as setting up direct debits or having a minimum amount of money in the account each month.
Some may also charge a monthly or annual fee.
Who can open a current account?
The minimum age for current accounts is 16 although some can only be opened once you are 18.
You will need to provide proof of your identity and address, plus the current account provider may need to do a credit check if the product includes an overdraft.
It may be harder to get a current account with an overdraft if you have a poor credit rating.
How much interest will I get on £1,000 a year in a high interest current account?
Rates vary among interest paying accounts and the return will depend on any balance requirements and limits.
Some providers offer as much as 3% interest, which would earn you £30 a year on a £1,000 balance.
This is more than what you would get by leaving the money in a standard current account, but watch out for any limits.
For example, some accounts may pay 5% annual interest but only up to £500.
So in this example you would only earn interest on half of the £1,000 balance, giving you £25.
What are the advantages of a high interest current account?
The best interest paying current accounts can often be a great place to earn a decent return on your money in the short-term.
This is because savings rates remain at record lows, so the best high interest current accounts can often be more competitive.
Earning interest through a current account requires less effort than regularly searching for a decent savings rate, as you can set up money to automatically come in either through a direct debit or your salary.
What are the disadvantages of a high interest current account?
There is a catch with high interest current accounts though.
Interest is often only paid up to a certain balance such as £2,000.
In contrast, a savings account usually has a much higher limit.
There is more monitoring involved with bank accounts that pay interest compared with standard ones.
There may be a set amount of direct debits you need to pay in each month to qualify for the interest, plus you may need to maintain a minimum balance.
You also have to account for monthly or annual fees that will reduce your returns, and make sure you repay any overdraft as there may be high charges for remaining overdrawn.
Keep an eye on the rate as it could be reduced by the provider, meaning you could be better off finding a new account.
Can you have more than one high interest current account?
There is no limit on the number of current accounts you can have.
You could set up one account to receive interest and another for your usual spending.
A high interest account may require a large balance though, so make sure you have enough funds to earn the rewards – especially if you are paying fees.
If an account has an overdraft there will typically be a credit check. So make sure you can manage multiple accounts and clear your debts each month, or this may harm your credit rating.
Why should I switch to a high interest current account?
There are no prizes for loyalty in banking.
An account you opened years ago could be inferior nowadays compared with others on the market.
You could be missing out on the best current account interest, a larger overdraft or spending rewards, so it is always worth keeping an eye on what other providers are offering.
The best high interest current accounts could also beat the returns you are getting on your savings.
Some banks and building societies will even pay up to £150 to new customers who switch their accounts.
Which current account gives the best interest?
The interest on offer from banks and building societies can vary.
Some of the best current account deals may pay 2% to 5% annual interest on balances.
But this may only be up to a certain amount and the rate may change, so check the terms and conditions and keep an eye on the account to ensure you are making the most of your money.
What are some alternatives to a high-interest current account?
A current account isn't necessarily the most effective place to earn interest on your hard-earned cash, especially over the long-term as rates can change regularly.
A savings account will usually let you put more away, or you can put up to £20,000 a year into a cash ISA and earn the interest tax-free.
How to switch current account
A comparison website can be a good place to find the best current account deals and see the different interest rates and fees on offer.
This is quicker than contacting each provider separately, although some deals may not appear on comparison websites.
Most of the main banks and building societies are part of the current account switching service.
This means your new provider will handle all the hassle of your current account switch.
That includes closing your old account and moving your balance, direct debits and standing orders – as well as ensuring your salary goes to the right place.
You don't even have to tell your old bank that you are switching as everything is done automatically.
The switch is usually done within seven working days.
What do I need to switch to a high interest current account?
There are two forms to complete when switching current account and your new provider will send these to you or you may be able to download them online.
You will need to complete a current account switch agreement with your new provider that confirms your move.
There is also an account closure form that provides details of the old account that you want to close and move your money from.
You will also need to show evidence of your name and address with your new provider and a credit check may be required.
A switch should complete within seven working days, and your new bank will work behind the scenes to get your money, direct debits and standing orders moved and to close your old account.
Avoid setting up new payments during this period to avoid direct debits or standing orders getting missed.
How do I close a current account?
You don't have to worry about informing your old provider if you are using the current account switch service, as this will be done automatically by your new bank or building society.
Your old account will close once the switch to a new one completes.
Contact your bank directly if you aren't switching but just want to close your account.
Your overdraft would need to be paid off before an account can be closed and you should also cancel any direct debits and standing orders.
How do I change my personal details?
You can usually change personal details such as your email contact by logging into your online banking or mobile app, but you may need to pass ID checks so a bank can protect you against fraud.
Some changes such as altering your name or address may have to be done in the bank or on the phone to verify your identity.
Can I get a high interest current account with bad credit?
It may be harder to get a high interest current account with bad credit especially if it has an overdraft.
Current account providers usually do a credit check when you open an account, so if you have a low rating due to unpaid debts, county court judgements or bankruptcies, it may be harder to get the best offers.
You may instead be offered a basic current account that won't pay interest or offer an overdraft.
It will let you do the simple basic banking tasks such as sending and receiving money and using a debit card for withdrawals and spending.
They are good for people with poor credit ratings as you can focus on rebuilding your score by showing you can keep up with your bills, and eventually qualify for a better deal.
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