News Column

Current accounts look good for savers

June 15, 2014

Lisa Bachelor



Your everyday current account could be the best place to stash your cash, say experts, with interest rates often double those available on easy-access savings accounts.

Last week Tesco became the latest bank to enter the current account market, paying 3% on balances up to pounds 3,000 and doling out extra Clubcard points for the supermarket's customers.

The supermarket's bank joins the likes of Nationwide and TSB in offering market-leading interest rates on current account balances. Both of these pay 5% on balances, while Lloyds pays up to 4% and Santander and Bank of Scotland up to 3%. Compare this with the interest rates on their instant access savings accounts: Tesco pays 1.35%, Nationwide 0.5% and TSB up to 1%.

"Current accounts are the new pseudo-savings account," says Susan Hannums of independent savings advice site SavingsChampion.co.uk. "Savers can't rely on a potential rate rise from the Bank of England to boost their savings. We fear that when this does happen, banks and building societies are unlikely to apply it across the board on savings products."

She adds, however, that savers should see the current account as part of a "wider savings strategy", rather than siphoning all their money into one. "Gone are the days where you could plonk all your money in one place and watch it grow. Now you have to do a bit of legwork to get the best return."

There are, of course, downsides to saving in a current account. At Tesco, for example, you need to pay in a minimum of pounds 750 a month to qualify or you will be hit by a pounds 5 monthly fee. And interest is paid on the first pounds 3,000 only.

With Santander's 123 account, the interest is paid on a much higher pounds 20,000, but you have to pay a fee of pounds 2 a month.

Also, interest is subject to tax on a current account, whereas money in an Isa is tax-free.


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Source: Observer (UK)