High-interest current accounts

Compare high-interest bank accounts[1]

What is a high-interest current account?

High interest current accounts work in the same way as any other current account, but they reward you by paying decent rates of interest on the money you keep in them. Some high interest current accounts offer better rates than savings accounts.

In contrast, regular current accounts pay little or no interest on the money you keep in them.

To qualify for these accounts you usually need to meet some requirements. For example, you may have to pay a minimum amount of money into the account each month or set up a number of direct debits. And the interest might only be paid on a set amount of money in the account, with any more money you keep there earning no interest at all.

current accounts

What is a high interest rate?

When you put money into your account, you’re essentially lending it to the bank to use until you need it. So, the interest rate is what your bank will pay you monthly or annually in return for borrowing your money.

What’s considered a high interest rate will very much depend on the state of the financial market.

Interest on credit balances, like the one you keep in your current account, is expressed as an Annual Equivalent Rate (AER). It’s the rate of interest you’d earn across a year if you kept your money in your account.

You can compare the AER of different providers and high-interest accounts to see which ones will give you the best results.

The AER that banks offer is influenced by the Bank of England base rate. When the base rate rises the interest rates banks offer tend to be higher, but when the base rate is low AERs usually fall too.

A high interest rate makes it more expensive to borrow money but it’s good for savers because they’ll earn more on the amount in their accounts.

Which banks pay the highest interest rate?

This can vary from month to month and the interest rate you get on your current account balance can also change depending on:

  • How much money you keep in your account
  • Whether you meet other conditions like setting up a certain number of Direct Debits

While the Bank of England’s base rate is at a historical low, savings accounts offer very poor returns. But some high-interest current accounts might pay more than standard current accounts and even savings accounts.

The best way to find a high interest current account where you can meet the conditions is to compare rates.

Why compare high-interest current accounts?

What do I need to know when applying for a high-interest current account?

When you’re applying for a high-interest current account it’s important to be aware that these often come with more requirements and conditions than standard current accounts - which you’ll need to meet in order to receive the advertised interest rate.

The requirements will vary between accounts and providers, so it’s worth shopping around to see which one might suit you best.

Typical conditions for high-interest current accounts include:

  1. Passing a credit check

    This will help the bank to understand your financial history and check whether you’re eligible.

  2. Switching your provider

    To qualify you’ll usually be expected to transfer your current account, and all the associated Direct Debits and standing orders, to your new provider.

  3. Paying a minimum deposit

    To receive interest payments, you might be required to pay a minimum amount into your bank account each month, or to maintain a certain minimum balance.

  4. Limits on high interest

    Most providers will cap the amount that you can receive interest payments on. Some accounts work on a tiered interest basis which means you must keep your balance in the top tier, or upper limit, to earn the highest rate

  5. Paying fees

    Certain high-interest accounts will have monthly fees and higher than normal charges for things like going overdrawn and not meeting the minimum requirements set by the provider.

How to make the most of high-interest current accounts

To help you earn the most from your bank balance, you’ll need to find current accounts with the best rates but also terms you can meet.

Keeping your balance in credit, and within the account thresholds set for earning interest will help you take care of your money.

For this reason, these accounts are particularly suitable for people who have a large sum leftover each month after their regular spending and outgoings.

As most high-interest accounts have a maximum balance for earning interest, to get the biggest return you might choose to spread your savings across a few. But be aware that opening several high-interest current accounts in a short amount of time can affect your credit rating.

If you do open additional accounts, you’ll need to make sure you meet the conditions of each one to maximise the benefits and avoid incurring any charges. This may mean having to spread your direct debits across accounts and move money around each month.

Pros and cons of high-interest current accounts

Pros:

  1. You can earn a better rate of interest than some savings accounts.
  2. You’ll have easy access to your money in the same way as a regular current account, without the restrictions on withdrawals some savings accounts have.
  3. Some providers offer incentives to open an account such as cashback or vouchers.
  4. Some high interest accounts might also have a linked high interest savings account to boost your savings even more.

Cons:

  1. There’s usually have a cap on the amount of money you can earn interest on.
  2. You might have to meet some strict conditions to qualify.
  3. Some banks only offer a high interest rate for a limited time, with the rate dropping significantly after that.
  4. You’ll need to be disciplined if you’re using it for savings – there’s a danger of spending what you might normally put away in a savings account as it’s easy to access.

What are the alternatives to a high-interest current account?

To earn the highest interest rate on your money, there are various savings accounts options you might also want to consider.

Regular savings accounts – These have some of the highest interest rates, but you can only funnel a little money into them each month. They typically last for a year and then your money’s moved to a different savings account, usually with a much lower rate. To open a regular savers, you’ll usually need to have a current account with the same provider and be able to commit to making monthly payments.

Fixed-rate savings – If you can leave your money untouched for some time, a fixed-rate savings account might offer a competitive rate. You tend to find these accounts ranging from one-year fixed rates up to five-year fixed rates and they give you the certainty of knowing how much interest you’ll receive.

ISAs – ISAs are tax-free accounts for your savings. Each year you have a personal ISA allowance – which sets the amount you can save without paying tax on it. These accounts are particularly useful for higher-rate taxpayers. Cash ISAs available for your savings, including fixed-rate and easy-access.

[1]Gocompare.com introduces customers to Runpath Regulated Services, which is authorised and regulated by the Financial Conduct Authority. Gocompare.com's relationship with Runpath Regulated Services is limited to that of a business partnership, no common ownership or control rights exist between us. Please note, we cannot be held responsible for the content of external websites and by using the links stated to access these separate websites you will be subject to the terms of use applying to those sites