You take your lunch to work every day, you’ve given up nights out, and you avoid your local shopping centre like the plague. Gone are the days where you’d honour pay day with a new outfit and a mad night in the club. Instead, you celebrate by transferring a wad of cash from your current account into a cash ISA. Your savings are gradually building up and you’re getting closer to your dreams of a new car/once in a lifetime trip/first house. You’ve got this saving money thing nailed. Well, at least you think you do…
Thousands of people across the country are missing out on valuable interest on their savings (aka free money) because they’re stashing their spare cash in shitty ISAs that pay just the right amount of interest to cover the cost of a Capri Sun and a Twix. Sure, the interest you’re getting has long been ‘tax free’, but what’s the point in tax free interest if you’re only getting 0.25% of it?
I know, I know, your mum banged on at you for years about the importance of saving money in an ISA, but times have changed and ordinary cash ISAs just aren’t as rewarding as they used to be.
[Besides, since basic rate tax payers are now entitled to earn up to £1,000 in interest without paying tax on it anyway, ISAs have pretty much lost their USP. More on this in another post]
At the time of writing this post, you’re likely to be far better off if you put your money in a current account instead of your traditional cash ISA.
The way I see it, bank accounts shouldn’t just be thought of as a place to put your money. They should be a place to grow your money by making the most of interest from the bank and top ups from the government. So where should you be putting your money? Let’s take a look at some of the best places to stash your cash:
Please note that bank account criteria, rules and benefits can of course change from time to time. As a result, if you’re read this post months or even years after it was first posted, some info may be a little outdated.
Help To Buy ISA
I know I’ve spent the last 5 minutes slagging off ISAs but this one (along with the Lifetime ISA) is different.
If you’re saving for your first home, it’s hard to beat the Help to Buy ISA. Not only will you benefit from interest, you’ll also receive a 25% boost from the government on your savings. For every £200 you save in this ISA, the government will top your savings up with an extra £50.
Even better, if you open your Help to Buy ISA with Santander, you’ll get a whopping 4% interest too.
Santander 123
August 2016 update: Santander is planning to reduce the interest rate on Santander 123 to 1.5% in November. I’ll update the info below when that happens.
If you can save between £3,000 and £20,000, the next best place to put your money is a Santander 123 account. You’ll get up to 3% interest on your savings and 3% cashback on household bills.
There are a few ‘catches’:
- You must pay a £5 a month fee
- You must set up two direct debits to leave the account each month
- You must pay £500 into the account each month
However, if you fill the account to the max you could earn more than £500 in interest and benefit from £80 in cashback.
You also don’t have to switch from your current current account to this one. You can have both.
TSB Classic Plus
The TSB Classic Plus account offers savers a huge 5% AER on savings up to £2,000. You’ll also get 5% cashback on the first £100 you spend each month on contactless transactions using your debit card
- You don’t have to switch your existing current account or set up any direct debits. This account can just be opened as an extra account
- You need to pay in £500 per calendar month to get the interest
You can place more than £2,000 into the account in total but you won’t get interest on anything over this figure.
Nationwide FlexDirect
In the first year of having a Nationwide FlexDirect account, you’ll get 5% interest on up to £2,500.
- You must pay £1,000 into the account each month in order to get the interest
- The interest you receive will drop to just 1% each year after that.
Club Lloyds
Club Lloyds’ interest rates operate on a tiered basis. If you pay in…
- £4,000 to £5,000, you’ll earn 4% interest
- £2,000 to £3,999.99, you’ll earn 2% interest
- £1 to £1,999.99, you’ll earn 1% interest
You’ll also get a ‘lifestyle benefit’ of your choice. You can choose between 6 cinema tickets, an annual magazine subscription or an annual Gourmet Society membership. What are the rules?
- Two direct debits must leave the account each month
- You must pay in £1,500 each month
- If, in any month you pay less than £1,500 into the account, you’ll be charged a £5 fee
- If your balance exceeds £5,000, you won’t get any interest on the funds above that figure
The table below (pinched from this huge Money Saving Expert guide) shows the best current accounts at the time of writing.
| In-credit interest (AER) | Max interest /yr (1) |
Min monthly pay-in | How many can you have? | |
|---|---|---|---|---|
| Santander 123 | 3% if you’ve £3,000-£20,000 | £532 (after fee) | £500 | 2 (2nd must be joint) |
| Club Lloyds | 4% if you’ve £4,000-£5,000 | £196 | £1,500 | 2 (2nd must be joint) |
| Bank of Scotland | 3% if you’ve £3,000-£5,000 | £148 | £1,000 | 3 |
| Nationwide FlexDirect | 5% on up to £2,500 for 1yr (2) | £124 (yr1) | £1,000 | 2 (2nd must be joint) |
| TSB Classic Plus | 5% on up to £2,000 | £97 | £500 | 2 (2nd must be joint) |
| Tesco Bank | 3% on up to £3,000 | £88 | None | 2 |
| Halifax | £5/mth (3) | £60 | £750 | 2 (2nd must be joint) |
| (1) Before any tax if you always held the max balance+. (2) 1% after. (3) Paid regardless of balance, as long as you stay in credit. The £5 is classed as after having paid basic rate tax. So higher taxpayers will lose some of the gain. | ||||
I haven’t listed every rule and benefit in this post, so please be sure to research the above accounts in depth before signing up.
If you’re saving in an account that offers greater rewards than the options above, give me a shout and I’ll add it to this list.
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