The best bank accounts for in-credit interest

Rising interest rates mean people are becoming increasingly aware of the potential returns their cash could be generating.

However, while many keep their excess cash in savings accounts there is a significant amount held in bank accounts, often earning zero interest.

The average amount held in a current account is £5,700, according to analysis by Nationwide of Caci data.

Only a handful of banks pay in-credit interest on current account balances. We reveal the best four that do

While savings rates have been rising, current account in-credit interest hasn’t seen huge improvements.

In fact, only a handful of banks and building societies offer in-credit interest on their current accounts. 

According to the Bank of England, there is a whopping £230billion held in non-interest bearing sight deposits earning zero interest – essentially current accounts. 

To put that in perspective, that’s more than the amount of cash being held in the entire fixed-rate savings market (excluding Isas). 

Keeping a healthy balance in a current account may be important to some people, but they could get paid interest for doing so.

We decided to round-up the best current accounts that offer in-credit interest.

1. Nationwide 

Nationwide offers an introductory in-credit interest rate on its fee free FlexDirect current account pays a market-leading 5 per cent.

The special rate is available for new applications on balances up to £1,500 for the first 12 months.

It means someone keeping at least £1,500 in the account could earn £75 of interest over the course of one year.

Unfortunately, anyone who has previously held a FlexDirect account will not be eligible for this rate.

However, if applicants have previously held a sole account only, they would be eligible for the introductory rate on a joint account and vice versa.

Nationwide offers an introductory in-credit interest rate on its fee free FlexDirect current account pays a market-leading 5 per cent

To qualify, switches must be made from another provider using the Current Account Switching Service (CASS) and a minimum of two active Direct Debits must be transferred as part of the switch and set up on the new account. CASS will do this automatically.

To benefit from the in-credit interest, holders must pay in a minimum of £1,000 each month.

On the last day of every month Nationwide will calculate the interest earned each day and then pay this interest on the first day of the next month.

However, if the monthly income being deposited into the account drops below £1,000, they won’t receive any interest that month.

The 5 per cent rate ends after one year. Thereafter it drops to just 0.25 per cent. So it may be worth looking elsewhere after the 12 months for a better return on your money.

2. Kroo

New digital bank Kroo has very much made in-credit interest its USP as it bids to attract customers.

It currently offers 3.6 per cent in-credit interest on balances up to £85,000. This is soon to change to 4.1 per cent from 1 July.

The 4.1 per cent would make it only 0.2 percentage points off the current best buy easy-access savings account, which pays 4.3 per cent.

Someone keeping a balance of £5,000 in the Kroo account for an entire year could expect to earn £205 of interest over the next 12 months if the rate remains the same.

Kroo is a fully licensed digital bank founded in 2016. It secured its full UK banking licence in 2022

The app-only bank, which launched its first ever current account in December, is only the third bank to receive a full UK banking licence since 2016, and customers are fully protected under the Financial Services Compensation Scheme.

It has labelled itself as a ‘socially conscious’ bank and is aiming to appeal to people by promising to plant two trees for every account opened, with the aim of planting one million trees by the end of this year.

In addition to the top-tier interest rate, Kroo’s current account allows customers to share, track and split bills.

It also offers zero fees on spending when using its debit card abroad and a lower overdraft APR than most high street banks.

Those wishing to take advantage of the Kroo deal won’t need to use the current account switching service to do so.

It could simply be used as a secondary bank account, as there are no fees or requirements for setting up an account.

To set up an account, switchers will need to download the mobile app and run through a five to 10 minute sign-up process.

3. Santander

Santander’s new Edge Up account pays 3.5 per cent in-credit interest on balances up to £25,000.

This means someone maintaining the maximum balance will earn £875 in interest over the course of one year.

Someone with maintaining a £5k balance could expect to earn £175 over the course of the next 12 months – if the rate remains the same. 

Its new account also offers 1 per cent cashback capped at £15 per month on supermarket and transport-based debit card spending.

It offers another 1 per cent cashback, capped at £15 per month, for household bills. This includes council tax, energy, mobile, landline, broadband and paid-for TV packages. 

Santander’s new Edge Up account pays 3.5 per cent in-credit interest on balances up to £25,000

Unlike a number of the big high street banks, its debit card will be fee free when being used aboard including no Santander charges when using ATM’s overseas. 

Although it may be that the local ATM will charge a fee as This is Money’s Simon Lambert found out recently when visting France.

For all its benefits, there are however some hoops and charges for any would-be customers to be aware of.

First and foremost it comes with a £5 monthly charge, which will add up to £60 each year.

Customers must also pay in a minimum of £1,500 a month and set up two direct debits from the account.

4. Lloyds

Club Lloyds also pays interest on balances up to £5,000. On the first £4,000 it pays 1.5 per cent and then between £4,000 and £5,000 it pays 3 per cent. It’s not possible to earn interest on any part of a balance over £5,000.

Taken together, account holders can therefore earn up to £90 credit interest per year if they hold a minimum of £5,000 in the account at all times.

Club Lloyds: The bank pays in-credit interest. On the first £4,000 it pays 1.5 per cent and then between £4,000 and £5,000 it pays 3 per cent

However, the in-credit interest is unlikely to be the biggest draw to Lloyds. Its Club Lloyds account is currently paying £150 to people just for switching to it.

On top of that, account holders can chose either 12 month Disney+ subscription, a choice of six Vue or Odeon cinema tickets, a magazine subscription, or a Coffee Club and Gourmet Society membership. 

The Disney+ subscription could save someone £79.90 a year. Equally an adult Vue cinema ticket will typically cost around £11 or £12. That could make for a cash saving of £72 on cinema tickets over the course of the year.

However, there is a £3 monthly fee to maintain the account – this is waived each month as long as account holders pay in £2,000 or more. 

This post first appeared on Dailymail.co.uk