Confused.com’s Current Account round-up
By Stephen Jones
Wondering where’s best to put your money? Confused by constant changes in the rates offered by high street banks? We’re hoping to help with a regular round up of what’s happening in the world of current accounts.
This time round, we warn about disappearing interest, changes to overdraft charges and some top tips to make sure your cash is working to its full potential.
The interest rate disappearing act
Interest rates may be low, but would you be willing to have your income put into an account that bears no return whatsoever?
Well, consumers may have to get used to the idea, after a range of banks stopped paying interest on their bank accounts altogether. Natwest recently announced that, from September, they will no longer pay out interest on seven of their accounts, including the Advantage Gold and Cash Account.
This move follows those of a host of other providers, including Santander, Barclays, HSBC, Nationwide and the Co-operative Bank – all of whom have decided to withdraw interest on some of their bank accounts.
That’s not to say there are no accounts out there offering good returns – in fact, if you play your cards right, you could even get a better return than you’re currently getting from your savings account. For more on this, head down to our ‘Top Tip’ below.
Overdraft charges are changing
Despite having few qualms about cutting the interest paid to customers, UK banks seem to be far more reluctant to reduce the fees they charge to those who go overdrawn. However, after industry and consumer pressure, things do seem to be changing – though whether or not this is for the better is questionable.
Lloyds TSB received much fanfare at the end of last month for announcing a reduction in charges it imposes on its overdrafts. From 2 December this year, penalty fees will be cut for customers who go overdrawn without arranging it with the bank first, while all accounts will have a £10 buffer put in place, so customers are not charged extortionate fees for going into the red by a single-figure amount.
However, there is a sting in the tail. The new measures will see all customers using an overdraft, planned or unplanned, subject to a £5 monthly fee – on top of the existing 19.3 per cent interest rate. This means that more conscientious customers who have consulted the bank about their need for an overdraft will be forced to pay extra for the privilege.
Some overdraft options
If you do use your overdraft fairly regularly, then there are some alternatives out there for you. The Halifax Current Account currently offers a simple £1 a day charge and zero per cent EAR for any arranged overdraft up to and including £2,500 – while anything above that will double to £2 a day. This makes it a good value option for certain amounts of borrowing, but be aware that, if you tend to be overdrawn for long periods or you have a large overdraft, this account could be very expensive.
Santander’s Preferred Overdraft Rate current account, meanwhile, offers zero per cent AER for the first 12 months, matching your previous overdraft up to £5,000. However, this then switches to a typical 12.9 per cent EAR (variable) after that 12 month period, and you’ll have to make sure you pay in at least £1,000 a month – otherwise you’ll be reverted to a variable rate of 19.9 per cent EAR.
For more information and full terms and conditions of both accounts simply go to our current accounts comparison page and see what’s available.
Top Tip
Our top tip this week comes from Alessandra Quartucci, business manager at Confused.com, who points out some top accounts for maximising your money in a low interest environment:
“The current accounts market is changing a lot, with some of them offering better credit interest rates than savings accounts. However, most have smaller maximum balances and usually require you pay a fixed sum every month in order for the high AER to kick in.
“The Santander Preferred In-Credit Rate account, for example, is currently offering a 5 per cent interest rate for the first £2,500 you deposit in the first year. If you have more cash to save, another high interest current account is the Lloyds TSB Classic with Vantage account which offers a good 4 per cent AER if you keep between £5,000 and £7,000 in your account.
“To qualify for both accounts you need to pay in at least £1,000 each month.
“Just remember that the AER on these accounts is gross and therefore paid before income tax is taken off, so keep this in mind when comparing it to an ISA.”