Current Account Interest Rates

Understanding current account interest rates

Current accounts' interest rates vary considerably, but some current accounts pay highly attractive rates of interest – often better than many dedicated savings accounts.

The drawback is that current accounts tend to have relatively low deposit limits above which you will earn no interest. It is therefore usually sensible to keep as much of your savings as possible in a high-interest current account, then put the rest in a different current account or other type of savings account.

Current accounts generally have two different interest rates – the one they charge you when you are in credit and the one you pay when you are overdrawn. Different current accounts are likely to be more appealing than others depending on whether you tend to be in credit or not most of them time.

AER versus APR

When people talk about interest rates, they will usually refer to an interest rate that is a certain percentage AER or APR.

APR stands for Annual Percentage Rate and is usually quoted for the interest you will pay on loans and credit cards.

AER means Annual Equivalent Rate and is used for the interest you earn on your savings. AER is the amount you would earn if your interest was only paid once a year, whereas in reality current accounts usually pay interest monthly.

Compare current account interest rates

To find the best current account interest rates, you need to compare current accounts from all the top providers on the market. The current account comparison table at the top of this page makes this process quick and simple, allowing you to find a great deal with minimal hassle.

Below are three of the top current accounts available right now:

Santander 123 current account

This account offers 1.50% AER/1.49% gross (variable) on balances up to £20,000. You can also earn cashback of 1-3% on a variety of household bills. This includes payments on a Santander mortgage or insurance policy.

This account has a £5 per month account fee. You must make a minimum monthly deposit of £500 and have two active Direct Debits to qualify for cashback.

TSB Classic Plus account

You can earn 3% AER interest paid monthly on balances up to £1,500 with a TSB Classic Plus account. You can also get £5 per month cashback if you have at least two Direct Debits from the account and another £5 per month when you use your debit card at least 20 times in that month.

There is no monthly account fee, but to earn interest you must pay in a minimum of £500 each month.

Nationwide FlexDirect current account

You get a market-leading 5% AER (4.89% gross p.a.) interest on balances up to £2,500 for the first 12 months with this account. However, the interest then drops to 1% gross p.a./AER (variable), so it may be worth switching to a different account after the first year.

There is no monthly account fee, but you won’t earn any cashback and you have to pay in at least £1,000 a month to earn interest.