Current Accounts – Interest Rates
When you open up a current account, or any kind of bank account for that matter, you’ll want to be sure that you’re earning as much interest as possible on the money you deposit.
In the following sections we’ll explain how interest rates work when it comes to current accounts, and what you should be looking out for if you want to get the best rates possible when you open up yours.
Annual Equivalent Rate (AER)
The interest you earn on the balance of your current account is worked out as an annual equivalent rate, or AER. This is not to be confused with annual percentage rates, or APRs.
APR is the term used to refer to the interest you pay on top of what you borrow when you take out a loan or credit card; AER is the interest you earn on the balance of your account.
A higher AER is, other things being equal, better as you’re earning more money on what you deposit.
Current accounts generally have two interest rates: one for the interest you earn on your balance, and one for the interest you pay if you go overdrawn.
Both of these rates are given as an AER, only one is used to calculate money added to your balance and one to calculate money deducted from your balance.
Do current account interest rates change?
The interest rates associated with each current account are subject to change, both by the Bank of England and by the account provider themselves.
You should always be told if your interest rates are going to change though. If yours change and you haven’t been told, then you should contact your bank to find out why.
Finding the Best Current Account Interest Rates
Getting a current account with the best interest rates is a matter of striking a balance between the interest you earn on your credit, and the interest that you’ll pay if you go overdrawn.
Ideally, you want a high AER on your balance and a low AER on your overdraft.
There are quite a few current accounts on the market that charge interest according to a tiered system. This means that the AER will change depending on how much money you have in your account – you might earn a certain percentage on the first £1,000 say, and then a slightly reduced percentage on the next £2,500 and so on.
Some will also cap the interest you can earn entirely – so you might only earn interest on your balance up to a maximum value of £4,000. It’s always important to read the small print for each account.
To see what kind of interest rates you could expect, compare current accounts online for free with Money Expert. We’ll show you a list of some of the best current accounts from market leading providers, so that you can be sure that you’ll get a good deal.