Four big banks offering up to 5% interest on everyday current accounts as Starling to AXE popular feature
FOUR big high street banks are still offering as much as 5% interest on everyday current accounts despite Starling axing its offer.
The online bank will stop paying all of its customers interest on their current account balances in the new year.
As it stands, the digital bank pays 3.25% interest on balances up to £5,000.
This means that a customer with the maximum amount in their account could earn an extra £162.50 a year in interest.
But on February 10, 2025, this perk will be removed entirely from all accounts.
It's not all bad news though because several other high street banks do offer interest on their own current accounts - some even beating Starling's offer.
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Consumer experts at Which? have rounded up the options for you if you're looking for another option.
Nationwide Building Society tops the table with its 5% interest offer through its FlexDirect account.
Next up is Kroo Bank's Current Account which is offering 3.85% - still higher than Starling's account.
Santander and Lloyds also are paying out 3% in interest for their current accounts.
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All account rates are correct as of December 5, according to Moneyfacts but it's worth bearing in mind that they're subject to change.
What are the alternatives?
Which? said that it might be worth putting your cash in an easy-access savings account if you're looking for the best interest rates.
It said: "Some banks and building societies pay interest on current account balances, but there are only a handful of options to choose from.
"For a better selection, think about putting your money in a savings account instead, where the returns are usually much higher."
Easy-access products work in a similar way to current accounts, allowing you to withdraw cash at any time without a penalty, it pointed out.
And although rates are falling, it's still possible to grab a deal with a rate above 4.5% AER.
Which? said: "Starling's own restriction-free Easy Saver account, for example, pays an above-average 4% AER on balances up to £1million.
"You'll need to be an existing customer, so this is a hassle-free option for the bank's current account customers who don't want to change providers."
It had a look at how the savings accounts compare to the interest rates offered on current accounts and found that Cahoot Sunny Day Saver also offers 5%.
The bank offers 5% interest on balances up to £3,000 - amounting to £150 a year.
Here's how the other accounts compare:
- Cahoot Sunny Day Saver - 5% AER
- Close Brothers Savings Easy Access Account - 4.7% AER
- Vanquis Bank Easy Access Account - 4.65% AER
- Gatehouse Bank Easy Access Account - 4.6% EPR
- Cynergy Bank Online Easy Access Account - 4.55% AER
Which? explained: "As you can see, instant-access rates offered by four out of five providers are higher than those offered by current accounts.
"The gap between Starling Bank's current account and the top-paying easy-access savings account, Cahoot's Sunny Day Saver, is 1.75 percentage points.
"Assuming you don't make any withdrawals and interest is calculated and compounded monthly, £3,000 in a savings account paying 5% AER would earn £150 in interest after 12 months, compared to £97.50 in a current account with a rate of 3.25%."
This equals £52.50 extra you could make simply by opening an easy-access account, it added.
Finding the right account for you
Interest rates matter, but they shouldn't be the only factor when picking an account.
Which? has rounded up several tips to help you find the best deal.
Shop around
When deciding the best home for your savings, make sure you compare accounts from different banks.
Make sure you check out guides to finding the best savings account and high-interest current account so you can make an informed decision.
But also you need to keep an eye out for caveats that may be hidden in the small print.
Watch out for withdrawal limits
One of the most common caveats to be aware of is limits on withdrawals.
Some top-rate instant-access accounts will often limit how many withdrawals you can make each year without losing interest, Which? explained.
For example, Atom Bank's Instant Saver Reward account currently offers 4.85% AER.
But if you make any withdrawals during a calendar month, the rate for that whole month – no matter what day you make the withdrawal on – drops to 3.25%.
Pay attention to how interest works
Which? said: "The first thing to note is that rates on both current accounts and instant-access savers are variable, which means they can go up or down at any time.
"High-interest current accounts may also have a few rules over when and for how long interest is paid on balances."
For example, it added, that interest is sometimes only paid for a period of 12 months.
Others have tiered interest, where you get a higher rate for having a higher balance.
Another common quirk of current accounts is that banks will often only pay interest on balances up to a certain amount - such as Nationwide's FlexDirect account which has a limit of £1,500.
Also watch out for instant-access accounts that offer introductory "bonus" interest rates that drop dramatically after 12 months, Which? added.
You may need a big lump sum
Both current accounts and instant-access savings accounts will require a minimum amount of cash to open or maintain.
Which? said: "Some savings accounts can be opened with as little as £1 or nothing at all, but others such as the 4.7% AER instant-access deal from Close Brothers Savings ask customers to get started with a lump sum of £10,000.
"High-interest current accounts often ask for a minimum monthly deposit. Both Santander's Edge Up and Lloyds Bank's Club Lloyds accounts require customers to pay in a minimum of £1,500 per month."
There may be fees involved
High-interest current accounts often ask customers to pay a monthly fee - and these vary across accounts.
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For example, the Santander Edge Up account charges £5 a month.
You might also need to set up a few direct debits to open an account, Which? warned.
Where to find the best savings rates
Many savings accounts offer miserly rates meaning that money is generating little or no return.
However, there are ways to get your cash working hard. Sun Savers Editor Lana Clements explains how to make sure you money is getting the best interest rate.
Easy access savings accounts offer flexibility for customers, meaning they can dip in and out of cash when needed. However, the caveat is that rates can change at any time.
If you're keeping your money in an easy access account, you'll need to keep checking whether it's the best paying account for your circumstances and move if not.
Check in at least once a month to see what is happening in the market.
Check what is offered by your bank - sometimes the best rates are for customers only.
But do search the wider market as often top savings accounts are offered by lesser known providers.
Comparison sites are a good place to check for the top rates. Try Moneyfactscompare.co.uk or Moneysupermarket.
You can search by different account type. You'll usually get a better interest rate if you can lock your money away for a fixed amount of time, but it's always a good idea to keep some money in an easy access account in case of emergencies.
Don't overlook regular savings accounts often pay some of the best rates, but you'll need to commit to monthly payments. This can be a great way to get into a savings habit while earning top rates at the same time.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
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