"High interest" current accounts pay just 0.58 per cent for sums over £2,500, says MoneyExpert.com
Savers are being urged to take more interest in the rates paid by the new breed of high interest current accounts as payouts plunge dramatically the more you have in the account, analysis by MoneyExpert.com* shows.
Currently there are 12 accounts offering interest rates of five per cent or more – but the offers are only good for balances up to £2,500, the independent financial comparison website says.
Just one of the accounts maintains the headline rate on balances above £2,500 – any cash above that earns a pathetic 0.58 per cent. The exception is Coventry’s First account which pays out 5.6 per cent up to a maximum £250,000.
Savers with accounts such as Alliance and Leicester’s Premier Direct Account (8.19 per cent), HSBC’s Bank Account Plus (7.72 per cent) and Halifax’s High Interest Current Account (6 per cent), need to realise that beyond a couple of thousand pounds they shouldn’t expect to see their cash grow rapidly.
Lenders paying over 5% are still a rare breed; of the 102 current accounts on the market the average interest rate offered is just 1.78 per cent for deposits of £1-50. Amongst the 44 accounts paying 1% interest or more the market average is currently 4.04 per cent.
There are two other accounts which provide a consistently high rate of interest even on larger balances, Cahoot which pays out 3.65 per cent up to £249,999 and Yorkshire Bank’s Current Account Tracker which pays 4%. Yorkshire’s account, however, is only open to customers with an income of £75,000 or more.
Sean Gardner, founder of MoneyExpert.com, said: "High interest accounts are a great addition to the market particularly for those with modest balances looking to make their cash work harder."
"But customers need to remember that the tempting high rates are only effective for sums up to a point, normally around £2,500. If you’re keeping any more than that in your current account then you should look elsewhere."
"Apart from the potential exception of the Coventry, cahoot and Yorkshire accounts those looking for a substantial return on their cash are likely to be better off investing surplus funds in an ISA or savings account rather than letting it sit gathering dust."
* MoneyExpert.com research of its own data on May 15th 2008