The credit crunch is very much alive and according to Mervyn King, the Governor of the Bank of England, we’re going to have to settle in for the long haul. The Nice decade, as he described it, is officially over, and with soaring energy and food prices, not to mention far tougher borrowing conditions, it’s not difficult to see why.
Nevertheless, not everything need be doom and financial gloom. As the money markets have stalled, banks are looking at other ways to keep their cash reserves high. Many are doing so offering high paying savings accounts, but current accounts too are increasingly competitive as banks look to rake in business via any means possible.
With the days of the miserly 0.1% in credit interest accounts seemingly behind us MoneyExpert.com gives a run-down of the current accounts that pay up.
Top of the table
When it comes to current accounts Alliance & Leicester are leading the pack.
The Premier Direct Account is the pick of the bunch offering an AER of 8.5% on accounts up to £2,500. This is only available for the first year however, after which the rate drops to 1% less than base rate. If you do need an overdraft the facility the account will also offer 0% for the first 12 months, up to £2,500. When that period expires you’ll find yourself paying 50 pence for every day that you’re overdrawn up to a maximum of £5 per month.
Hot on the heels of the Alliance & Leicester Account is the Abbey Account. It has much the same structure and pays an excellent in-credit rate of 8%, but doesn’t offer the 0% on overdrafts for the first year – its authorised overdraft rate is a fairly steep 19.9% EAR.
A lump sum option
With the market increasingly occupied by a huge number of online providers it’s not surprising that some accounts are coming up with inventive ways to attract custom.
The 1st Account from First Direct is a prime example. Rather than paying a competitive rate of interest on in-credit accounts it offers a lump sum of £100 to new customers – they’ll even pay a further £100 and help you transfer to another account if within 12 months you decide that you’re unhappy with the service.
Getting back what you put in
One of the potential drawbacks with these new high paying current accounts is that many of them require you to pay in a certain amount every month.
This can be a fairly substantial figure, in many cases as much as £1,500. The High Interest Current Account from Halifax requires a monthly deposit of £1,000 and the Gold Current Account from Norwich and Peterborough £1,500. If you fancy the Private Banking Flexible Account from the Bank of Scotland you’ll need to be earning a very healthy £75,000.
The best option for those not wishing to have any required monthly pay-in comes from Cahoot whose Current Account pays a rate 3.65% up to £249,999. Although given the rate it offers the Premier Account from Alliance & Leicester is a good bet, only requiring payment of £500 a month.
Package it up
Banking charges and fees are very much in the press at the moment but the idea of paying a set fee for a banking product such as a current account is far from new. So-called packaged accounts wrap up a range of benefits such as travel insurance, life insurance and card protection but charge a fee for the privilege.
Once again Alliance & Leicester are competitive. Their Premier 50 Current Account, though only available to people over 50 years of age, pays an excellent 8.5% in-credit interest alongside various health and travel insurance benefits.
The HSBC Bank Account Plus is also worth considering. Again it pays an excellent in-credit rate, and as well as the standard insurance benefits it offers discounts on restaurants, hotels, and travel.
These accounts can be worth the fee, but only if you make the very most of the offers available. A £12.95 monthly fee may not sound a huge amount but equating to over £150 a year it’s around three times more than you’d need to pay for a standard annual travel insurance policy.