Two cool current accounts that pay 6%
If you've had the same bank account since you were at school, chances are you'll be earning a pretty pathetic rate of interest on your hard earned cash.
According to research by the Office of Fair Trading (OFT) in 2008, the majority of UK consumers earn a meagre 0.5% or less on their credit balances.
Now the Bank of England base rate is at an all time low, the rates paid on most current accounts have plummeted even further since the OFT's study was published.
The NatWest Current Plus Account, for example, pays a lowly interest rate of 0.1% AER. Meanwhile, if you hold a Nationwide Flex Account, you will not receive a single penny in interest!
However, if you switch to one of these super deals from Abbey or Alliance & Leicester, you could earn an attractive 6% AER.
Pick a kinder, clever current account
Most people pay too little attention to their current accounts - especially when you consider they're among the most important financial products any of us own.
If you simply stuff your salary into your account and never check how much interest you're earning on your money, it's unlikely you're being paid a competitive rate.
To bag a better deal, it's important to shop around and compare current accounts. Consider your individual needs and go with a deal that you feel will work for you.
Right now, my top picks are the Alliance & Leicester Premier Direct Current Account and the Abbey Account (Preferred In-Credit Rate).
Both offer a market-leading rate of 6% AER on balances up to £2,500.
Under the terms of both accounts, this rate is fixed for 12 months. This means your money would protected from any further rate cuts for the duration of the deal.
However, be aware that on balances above and beyond £2,500, the interest rate on offer from both of these current accounts drops away to almost nothing.
The Abbey account also requires you to credit your account with at least £1,000 every month. If you fail to make the minimum deposit required, you'll earn interest at the bank's standard rate - currently just 0.10% AER.
With Alliance & Leicester on the other hand, you must be able to pay in £500 each month - otherwise a monthly account fee of £5 may apply.
It's also worth being aware that after your year-long fixed rate period is up, the interest paid in both the Abbey and Alliance & Leicester accounts will drop to 1% AER. Therefore, as with any financial product, you may have to shop around in 12 months' time to ensure you're still earning a competitive rate.
Both Abbey and Alliance & Leicester are owned by the Santander group, which means that if you already have a current account with either bank, you won't be eligible to switch it and grab one of these 6% deals.
If this is the case, your best option might be the Reward Current Account from Halifax and the Bank of Scotland. Instead of earning interest on your funds, for every month you pay in £1,000, you'll receive a £5 bonus - even if you're overdrawn!
If you're in the red…
If you're often overdrawn, a current account that offers a high in-credit interest rate is unlikely to be especially useful. What you need is a 0% overdraft facility.
Right now, the Abbey Account (Preferred Overdraft Rate) and Alliance & Leicester account both offer an interest free overdraft for 12 months.
Abbey will match your previous overdraft facility up to a ceiling of £5,000. However, in order to qualify for this offer you must pay a minimum of a £1,000 into your account each month. If you fail to do so, you'll have to pay the bank's standard overdraft rate of 12.9% EAR.
With the Alliance & Leicester Premier Direct Current Account, the maximum overdraft limit you can apply for is £2,000. If you need an overdraft bigger than this, you'll be charged 50p a day, up to a limit of £5 a month. You must also credit your account with a minimum of £500 each month.
It's also important to remember that these overdraft offers are ‘typical'. Lenders are not obliged to give every customer the deal as advertised, and the size and interest rate charged on any overdraft you are given will depend upon your personal circumstances and your credit score.
Switching's simple
Many people worry that switching their current account could result in important standing orders going astray or wages being paid into the wrong account.
However, these days switching doesn't have to be such a hassle.
Many current account providers provide a special switching service which will do all the necessary work on your behalf - including the change over of direct debits and regular bill payments.
These days, I'd like to think most people are too financially savvy to stick with the same products year after year. Many of us wouldn't dream of blithely accepting our car insurance renewal quote - so why not take the same attitude when it comes to your current account?
In my view, switching is an easy and worthwhile thing to do.
And after all, the only way we can stop these banks paying us derisory rates on our hard earned cash is to vote with our feet!
**Articles featured on BeatThatQuote.com are for information purposes only and reflect the views of individual writers. Articles are not, and should not be considered as, financial advice. BeatThatQuote.com strongly encourages our readers not to rely solely on information contained within this article/our website, but to conduct their own research and seek independent advice about the financial products they purchase.**
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