High interest current accounts often offer better interest rates than many savings accounts.
What are high interest current accounts?
High interest current accounts do not differ in many respects to standard current account products, but they all offer higher interest rates on in-credit balances. A number of these types of bank account are available and, if you remain in credit on your account and avoid going overdrawn, they may well be of benefit to you.
Is a high interest account right for you?
If you are to benefit from this type of account, you must remain in the black on your account, and retain an optimal balance at all times (interest tends to only become applicable with a minimum balance, and then it tends to be capped beyond certain balances). If you can manage this, you may find that the interest rate you receive is actually higher than that of many savings accounts. However, it is worth bearing in mind that some accounts may require a minimum monthly deposit in order to obtain these rates. It is important therefore to check that you can comfortably put this amount in to the account every month before you apply. Failing to adhere to the minimum requirements associated with your particular account may lead to you losing your rewards, or even face a financial penalty. These penalties will vary from provider to provider, and may not take effect immediately if you only default on one month but it is always best to read the small print before you apply so that you are aware.
Do high interest accounts have drawbacks?
You should be very clear when selecting this type account that the interest rate that you are offered is not just an introductory offer that will expire in a short length of time, usually after a 12 month period. If you currently have a high interest current account and are looking to switch in order to receive a higher rate, then you should ensure that the rate remains at an increased rate after the expiration of any introductory (new customer) period.
Some banks and building societies have been accused of exploiting the fact that few people change their current accounts to lure new customers with impressive rates, which they subsequently reduce after a given time.
What you need to be aware of
If you do find yourself making use of an overdraft facility every so often, then this type of account may not necessarily be the best one for you. However, some providers do offer the benefit of low interest (or in some cases interest free) facilities alongside a great interest rate. Coupled with the incentive of a switch-guarantee within a convenient time frame, it may be of real benefit to you financially to change providers.
It really pays to use the comparison table above to ensure you get the best account for your needs and financial circumstances.
If you are happy enough to lock your money away in an account which does not offer easy access, and therefore the temptation to dip into your savings, a fixed term savings account might be better suited to you.