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.
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.
This can vary from month to month and the interest rate you get on your current account balance can also change depending on:
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.
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:
This will help the bank to understand your financial history and check whether you’re eligible.
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.
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.
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
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.
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.
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.
That depends on the high-interest account you choose, your interest rate will either be fixed (it will remain the same for a set amount of time at a set interest rate) or variable (the interest rate will go up and down depending on your bank). Most high interest current account rates are fixed for 12 months.
Some high interest current accounts will pay your interest monthly, but you’ll find some will pay it annually. There are also banks that pay interest quarterly. If you’re unsure when your account will pay interest you can check this with your bank.
Both work in the same way – you use them to manage your everyday transactions and have easy access to your money with a debit card.The only real difference is high interest current accounts pay more interest and usually have restrictions and conditions in return.
No. Most high-interest accounts will have a cap on the amount of money you can earn interest on.
Yes, it’s possible to have several high-interest accounts and this can be a way of spreading your money to maximise the interest you earn, but you’ll need to meet the eligibility criteria and conditions of each account. Be aware that opening more than one in a short space of time may affect your credit rating.
Typically, you’ll need to pay a certain amount into the account each month and you may need to have a minimum number of Direct Debits. Having multiple accounts might involve transferring money back and forth to make sure you reach the minimum deposit needed for each account.
This can be worth doing if you have more money than the interest caps set by individual accounts, but it’s not recommended if you don’t have much surplus to play with.
As always, it’s best to look around and compare options. The right account for you will depend on how much money you’re able to deposit and how easily you can meet the minimum eligibility criteria.
The best account for you may not simply be the one with the highest interest rate – you should also check what caps are in place, how long the interest rate is offered for, terms and conditions and any introductory offers.
It just means any account that pays you interest. That could be a current account or a savings account.