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However, when it comes to getting the best interest rates on current accounts, it can be an even more tortuous search. But despite what it may feel like, there are a number of providers who still offer current accounts that pay interest.
We take a look at the best current account bank interest rates and what to look for to get a great deal.
Although it might be surprising, current account interest rates compare very favourably to other types of account, including savings. Not every current account offers interest payments on credit balances but of those that do, many are very generous in comparison.
The highest interest rate on a current account may have conditions attached such as being able to pay in a minimum sum every month and paying out at least one or two direct debits. This type of qualifying criteria is typical for the best bank interest rates on current accounts but on the flip side, there's often an incentive offered too for switching from your existing provider.
The average interest rate on a current account varies hugely with most providers offering very little. However, if you compare your options and shop around it's certainly possible to get a good deal.
Knowing how to get the best rate of interest on a current account isn't that much use if you don't actually understand what the figures mean. And with financial jargon often harder to understand than a foreign language, it can be almost impossible to work out how much interest you will actually receive.
For most bank accounts interest is normally paid on cleared balances only; credits which are waiting to be processed won't count towards an interest payment. Many banks calculate this at the end of each working day and will deduct income tax from the gross figure.
Therefore, if you want to know how much interest you will be paid, you just need to know the rate paid by your bank. Take the interest rate (5% for example) then divide this figure by 365; this will give you the daily interest rate. Multiply this figure by your cleared balance at the end of the day and the figure will show you how much interest you earned on that one day. Repeat the process for all the days you want to calculate interest for. Don't forget to deduct tax from this figure unless you receive your interest payments gross.
Once you know how to calculate the interest payable, you have more scope to compare current account interest rates as you will be able to determine the difference that varying rates will have on your balance.
The bank account with the highest interest rate will of course be the one you are immediately drawn to but it's worth checking the fine print to see if the deal is quite as competitive as you think.
The best interest rate accounts not only typically have qualifying criteria, they also frequently carry penalties if you fail to meet them one month. This can wipe out any interest you earn so if you do sign up, make sure you set yourself reminders to check. And many of the accounts may also be fee-based so remember to factor this into your calculations when you compare bank account interest rates.
Other considerations include checking what balance the highest rate of interest applies to; you may find that once you have accumulated a certain amount, interest payments dwindle to as low as 0.1%. Likewise, the headline interest rate may only be payable for an introductory period; check to see what it reverts to once this has passed as it may not be worth making the switch.
It's also worth considering other priorities as well as the online bank account rate of interest. For instance whether there is a banking app, if there's a branch near you and, if you go into your overdraft on the odd occasion, whether the rates are favourable. Ultimately a high rate of interest on an overdraft could cost you more than you'd earn in interest so make sure you check this just in case!
There are lots of things to consider when you choose an account for your everyday banking. We share our top 9 tips for finding the perfect current account for your needs.
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