Which current accounts pay interest?
Most current accounts pay little or no interest on in-credit balances, but some, like those listed in the table above, advertise rates that put some of the best savings accounts to shame. These reward people for staying in credit by calculating the interest owed on each day's balance, then crediting the account once a month with the interest earned.
It's simple to see if an account pays interest or not, and if so, what the rate is - just check the figures in the column headed, "Interest rate (AER variable)" above. This gives the rate we could expect to earn over a year on an initial deposit, with interest being paid monthly on both the deposit and the interest it's earned so far (known as compound interest).
How can I get the highest rates?
Note that the accounts in the table above offer "x% up to" a particular amount. Almost all current accounts that pay interest only do so on certain amounts, and generally the higher the rate of interest the lower the cap on the balance that will earn that rate: any extra money in our account will earn nothing.
Most accounts that pay interest are considered "premium" accounts, and may therefore charge a monthly fee. In some cases this fee is waived for those who pay in at least a certain amount each month - the amount varies from bank to bank - while others charge no matter how much money we deposit each month. In the latter case, the account is only a good deal if we know we can earn more in interest than we'll pay in fees.
Customers may also need to meet other conditions to have interest paid on their balances. We've mentioned the most common - depositing a minimum amount every month - but other banks may also ask that we make a certain number of direct debit payments from the account each month, the idea being that we use it as our main account rather than as a savings account.
Which is the best interest paying current account?
The best interest paying current account for us is the one that will pay the highest rate of interest on as much of our balance as possible. Those who have lower average balances will often benefit most from the accounts with the highest advertised rates, while those with a substantial amount should consider an account with a lower rate but a much higher cap, or spreading the balance across several high rate accounts.
Note that as well as paying interest, some of the accounts above also offer cash back on certain kinds of spending, usually for paying bills, which can help boost monthly earnings.
How many interest paying accounts can I have?
It might be tempting to open multiple accounts to earn the top interest rates available on as much money as possible, but the banks don't allow this. Customers will usually find that they're limited to one solo account and one joint account per provider; if they're allowed to open more it's likely that only one will be paid interest at the advertised rate.
That said, there's nothing to stop someone from having an interest paying account from more than one bank, as long as they can meet the terms and conditions of each account. It can take a bit of time to set up payments so that each account benefits, but for those who are organised enough it can help ensure that more of our money is working for us.
Is an interest paying current account right for me?
Interest paying current accounts are best suited to people who can maintain a high average balance. This is particularly the case with those accounts whose conditions state that we move all our everyday banking to them. As our salary or other source of income is paid in, then various bills and payments go out, our daily balance can rise and fall considerably over the course of the month, and if we only have a high balance for a few days of the month, that will seriously affect how much interest we earn.
Those who need an overdraft on a regular basis will be better off comparing accounts on that basis instead: no matter how much interest it's possible to earn on in credit balances, this will quickly be wiped out by the interest charged on overdraft borrowing. We've a guide to current account overdrafts here.
Go back up to the bank account deals