Bank Account Interest Rates

Some current accounts may pay little or no interest. Even if they do there is a fair chance that the rate will be only a fraction above current base rates. This means that keeping a large positive balance in your current account could be a huge lost opportunity for you to grow your finances. One of the things a bank needs to do is use your money while they have it to grow their profits and generate additional dividends for their shareholders. If money is in a current account it is volatile, because you can instantly take it all out! In general people move money out of savings accounts less frequently than from savings accounts, so a bank can be more confident about having the use of their customers’ money if that money sits in savings accounts.

The banks and other institutions therefore use bank account interest rates to encourage you to leave more of your money with them for longer periods. They do this simply by offering bank account interest rates that typically will be higher if you agree to commit your money to the bank for a certain time period. Bank account interest rates will also depend on the amount of risk you accept on the rate of return you’ll get, for example with a variable rate savings account. Also, as you would expect, the more of your money you give them that you commit to a bank account, the more favourable the bank account interest rates will be. The bank account interest rates that are on offer will reflect the current level of the Bank of England base rate. As the rate is currently low, banks and building societies will not be offering large interest rates, since paying high interest to their customers would not be cost-effective.

How to find great Bank Account Interest Rates

• Online accounts typically offer much higher bank account interest rates on savings and current accounts.  This is because there are far lower overheads for a bank if they are not paying staff to serve you and paying for building rental costs.  As a caveat, make sure that the customer service is up to scratch, because if anything goes wrong with your account, you need to know that you will be able to contact someone quickly.  Call up some banks and ask them questions about the account to gauge the helpfulness of their staff.
• There are savings accounts that generate tax-free growth up to a maximum level specified by HM Revenue and Customs and it may be advisable to invest in these to the fullest extent possible.  Consult a financial adviser before investing your savings in an account where there is a risk to your capital.
• In order to find the best bank account interest rates, you need to offer the bank some financial benefit.  If you are constantly in your overdraft, you are not going to get great rates when you are in the black.  Likewise, if you have a savings account, you should be saving enough to make it worth the bank's while to offer you an incentive to stay with them.  If you have less than £1000 to save, in the current financial climate, it may be worth considering premium bonds as an alternative way of saving.