In this guide
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A current account is a place where you can manage your money, and some providers pay a rate on your in-credit balance. While it can be a useful way to gain extra cash, some of these options do come with restrictions.
For banks and building societies, the current account market is highly competitive. That’s why some providers like to distinguish themselves by offering perks.
These benefits range from once-off cash switching incentives to accounts with interest-free overdraft facilities.
But one perk some providers use to entice savvy savers is an interest rate on their money. Below we list the top-paying high-interest accounts around and we explain:
- How does a high-interest current account work?
- Why would I use a high-interest current account?
- What to look out for when using a high-interest current account
- What alternatives can I consider?
Read more: The best savings accounts
What is a high-interest current account?
A high-interest current account is one where you can earn interest on your balance.
This rate can be fixed for a certain period or it can be variable, meaning it can change at the bank’s discretion.
Some banks and building societies set various eligibility criteria to earn this rate, while others will place restrictions on how it’s paid. We explain these in more detail below, and how it’s an unlikely one-stop solution for many savers.
Read more: Our six best current accounts
How do high-interest currents account work?
With other types of savings accounts it can be easy to work out how much interest you’ll earn. A fixed-rate bond, for example, won’t typically allow withdrawals or additions once your term begins and it offers a constant rate.
But with a high-interest current account, there are more variables at play. Rates may fluctuate and your balance will change as you manage your money.
So, many banks will determine your interest payout in a similar way to an easy-access savings account.
Nationwide’s FlexDirect account, for example, calculates your interest on the last day of every month and pays it on the first day of the following month. Other providers, such as Kroo Bank, calculate your interest at the end of each day and then pay it at the beginning of the following month.
So, in the case of the latter, it’s better to hold a decent balance over a longer period.
The best high-interest current accounts
If you’re interested in making use of a high-interest current account, we list the providers with the best rates:
| Provider | Account name |
Interest rate (AER) |
Min/max deposit |
Account access |
|
|---|---|---|---|---|---|
|
FlexDirect Account | 5.00% |
£0 / £1,500 |
Branch / Cash Card / Mobile Banking / Online / Telephone | |
|
Kroo Current Account | 4.35% |
£1 / £85,000 |
Mobile Banking / Mobile | |
|
Santander Edge Up | 3.50% |
£1 / £25,000 |
Branch / Cash Card / Mobile Banking / Online / Telephone | |
|
Current Account | 3.25% |
£0 / £5,000 |
Cash Card / Mobile Banking / Online | |
|
Club Lloyds Current Account | 3.00% |
£4,000 / £5,000 |
Branch / Cash Card / Mobile Banking / Online / Telephone |
Why would I use a high-interest current account?
While interest rates were low, current accounts offering interest could give lucrative returns. These accounts were paying “head and shoulders above the rest of the easy-access market”, according to Anna Bowes, co-founder of Savings Champion, a savings platform.
This meant people could bolster their savings by choosing using one of these accounts and it was an easy way for providers to entice new customers.
But once the Bank of England began raising rates, easy-access rates followed suit and the gap between these two types of accounts narrowed. Today, the best easy-access rates pay more than the best high-interest current accounts – so there’s no urgency for people to switch to a current account just for its rate.
You also may feel inclined to choose a high-interest current account for the convenience of keeping your savings and disposable income in one place. It can make managing your money easier and your interest will be paid straight into your current account but as you begin to build your pot you might need to restrain yourself from spending it.
Plus there’s always the possibility that if your card gets stolen or you encounter fraudsters, your whole account is at risk.
Read more: Best bank account switching bonuses
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What to look out for in high-interest current accounts
While some in-interest current accounts come with a headline rate, this is sometimes restricted to a maximum portion of your cash. So those with bulky balance will still need to find somewhere else to house the rest of their savings.
Nationwide’s FlexAccount is an example of this as it pays 5% only on balances up to £1,500.
In addition, certain providers require you to fulfil a set of eligibility criteria to qualify for their rate.
To earn your interest, you may need to pay in a certain amount each month and set-up a certain number of direct debits. Again, Nationwide’s FlexAccount is an example.
The bottom line is that you need to ensure the current account works for you before considering the savings rate, according to Bowes.
“Don’t be lured into an account for the chance to earn an extra £50 or £75 if you are then likely to pay charges on other aspects of your dealings with that account,” she said.
Santander’s Edge Up current account, for example, requires a monthly fee but pays 3.5% on balances up to £25,000. Admittedly, you can earn back this fee through its various cashback offers.
What alternatives can I consider?
Easy-access savings accounts are one alternative to a high-interest current account. It offers a similar set-up where you can earn a rate of interest and you’re free to withdraw your money instantly.
Explore the best easy-access accounts.
However, if you’re looking to take advantage of a top rate which won’t fluctuate, consider keeping your money in a fixed-rate bond. You won’t be able to touch your savings until the term is up, which can range from anywhere between a couple of months to a few years, but you could earn more than saving with an easy-access account.
Explore the best fixed-rate bonds.
Otherwise, if you’re yet to make use of your Isa allowance, consider saving your money in this wrapper instead. An Isa is a tax-efficient home for your savings, shielding your money from income and capital gains tax.
Explore the best cash Isa rates.
Explore the best stocks and shares Isas.
Finally, if you’re looking for a place to compare all the best savings, make sure you stay updated with the latest and best savings rates here.
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Some of the products promoted are from our affiliate partners from whom we receive compensation. While we aim to feature some of the best products available, we cannot review every product on the market.
