Tesco Bank is the latest to enter the current account market with an account that pays up to 3% interest. So how straight forward is it to make the most of the headline rates of a credit interest current account?
Over the past year competition in the credit interest current account market has been heating up with the majority of the big banks now offering some kind of deal. Even Tesco Bank has got involved, launching its first current account last week. Tesco’s current account pays up to 3% interest as well as Clubcard points on debit card spend.
So with interest rates as high as 5% on offer from providers like Nationwide or TSB compared with just 1.65% with the best one year fixed-rate cash Isa it’s easy to see why these accounts seem so attractive. Are you considering these accounts as an alternative for you savings?
It’s easy to consider these current accounts as some kind of substitute savings account, but they do require a level of maintenance that your average savings account might not.
Substitute savings accounts?
The accounts are perhaps more comparable to regular savings accounts which limit the amount you can earn interest on and require a monthly deposit. For example with most of the big named accounts such as Santander’s 123 Account, Lloyds Club Account or Nationwide’s FlexDirect account you are required to pay in £500, £1,500, and £1,000 respectively to qualify for interest.
Additionally, those accounts that apply tiered interest from Lloyds Bank, Santander or Vantage with Bank of Scotland you have to have a balance within the top tiered rate to get the headline rate. At the lower tiered interest rates of 1% or 2% these accounts become much less competitive after tax, in comparison to the best cash ISAs on the market particularly for higher rate tax payers.
Add to this a fluctuating monthly balance if it’s your main account and you need to be careful to manage the balance above the top interest tier to receive the top rate.
If you have a credit interest paying account I’m keen to hear how you make the most of the deal on offer. Have you opened one of these accounts as a secondary account? Do you have more than one credit interest account or a joint account to maximise the amounts you can save? And are you looking into Tesco’s new offering?