Is It Time to Ditch High Interest Current Accounts?

Written by Karen Bryan

I’m beginning to think that if’s almost time to ditch at least some of my high interest current accounts.

In the good old days, when the Santander 123 Current Account. Lloyds CLub Current Account and Bank of Scotland Current Account with Vantage were paying up to 3% on credit balances, it was a no brainer to hold these accounts.

But then the conditions for earning that decent rate of interest started getting more onerous e.g. you had to have a minimum of two direct debits paid out each month and/or the monthly fee increased. Plus the interest rate paid started falling, Santander led the way halving the top rate of interest paid on their 123 current account from 3% to 1.5%. Recently Lloyds and Bank of Scotland also reduced their top rate of interest to 1.5%.

This is against a background of the creeping up of the rate of interest paid on instant access savings accounts. You can now around 1.35% on instant access accounts offered by the Coventry Building Society and the Bank of Cyprus UK.

This leads me to question whether I can be bothered with my (supposedly) high interest current accounts. If you want to max the rate of interest paid on these current accounts, you have to keep topping up to the full balance every time that a direct debit is paid out. One month, I didn’t use a specific credit card, which meant that only one direct debit was paid out from that current account the following months, so I didn’t earn any interest.

It appears much simpler just to have your savings in one savings account, versus all the hassle involved in ensuring that you earn the most in interest from these current accounts.

But there is an additional carrot to keeping these current accounts on the go. Being a current account holder gives you access to monthly saver accounts which pay a good rate of interest. The Bank of Scotland Monthly Saver and Lloyds Bank Monthly Saver currently pay a fixed rate of 2.5% for the 12 month term on deposits of up to £250 a month.. Club Lloyds Monthly Saver pays a fixed rate of 3% on monthly deposits of up to £400 a month. The Santander Regular eSaver pays 5% on monthly deposits of up to £300.

It’s rather a slim carrot if you have substantial savings. As the average balance on these regular saver accounts will be between £1,200 and £2,400.

Every time I think about simplifying my finances, it still seems that there is some small financial gain in maintaining a plethora of different types of accounts.

But that gain is getting ever smaller. Perhaps if the Bank of England does finally increase base rates next month, and there is a corresponding increase in the interest rate paid on instant access savings account, I may be able reduce the number of  current accounts which I hold.