Since I first started dreaming of buying my own place in September 2014, I’ve saved a huge amount of money towards my first home. To start with I saved £6,000 in six months and I then went on to save £10,000 in a year. Since then I’ve managed to save enough to buy a new build apartment in south Manchester. I should hopefully be getting my keys in a matter of weeks!
When I first started saving, I assumed the best place to put my deposit was a cash ISA. Everywhere I turned for financial advice, the general consensus seemed to be that cash ISAs were the way to go because they offered tax-free interest.* In hindsight, I should have been putting my money in accounts that offered more generous rates in the first place. After all, it doesn’t matter if your interest is tax-free if you’re barely getting any anyway.
It was only in April 2016 that I realised it was time to shake up my savings and make the most of my money. Up until that point, I’d been keeping all my money in just two accounts. The first was a rubbish current account and the second was the aforementioned cash ISA earning a pitiful 0.25% interest. Seriously. What’s the point in tax-free interest if all I can buy with the interest is a Curly Wurly?
So come April last year, I decided to open a Halifax Help to Buy ISA offering 4% interest (this rate has unfortunately dropped for new customers, but it’s still worth having). From there, I went on to open a number of other high interest bank accounts in a bid to make my money work harder. Here they are…
May 2016 – Santander 123
June 2016 – TSB Classic Plus
July 2016 – Club Lloyds and Nationwide Flex Direct
February 2017 – Bank of Scotland
March 2017 – Tesco Bank
Think of bank account interest as an extra income…
Opening the accounts above really paid off. Since April 2016, I’ve made more than £800 in interest and cashback! I like to think of the interest I earn as an extra income. Sometimes I like to pretend it pays for my monthly travel expenses. Other times I imagine it’s paying for meals out or after-work drinks on a Friday.
Obviously, I’ve only earned this much because I had plenty of cash to put in the accounts. If you’re starting from scratch you’ll earn a lot less, but you’ve gotta start somewhere and as your savings grow, so too will the free money!
Besides, having multiple bank accounts sounds like a lot of hassle but it really isn’t. Each account takes like 10 minutes to set up, you’ll then be sent your cards and details in the post, and you’ll be good to go!
Let’s have a run down of each account and the benefits…
Since opening the accounts above, the interest rates I initially benefited from have fallen with some banks. For the purpose of this post, I’ll just talk about the interest rates offered now, rather than the ones I got initially.
Santander 123 current account – 1.5% on up to £20,000
Open a Santander 123 current account and you’ll earn 1.5% on up to £20,000.
You’ll also get cashback on utility bills paid from the account.
However, you will have to pay a £5 a month fee. If you don’t have much money in the account and/or you don’t make the most of the cashback deals, this could render it less rewarding than other accounts I’ve listed.
You also need to pay in £500 each month and have two active direct debits leaving the account.
TSB Classic Plus – 3% on up to £1,500
With a TSB Classic Plus account you’ll earn 3% interest on up to £1,500. You can place more in the account but you won’t earn interest on the extra.
You’ll also earn £5 cashback each month providing you’ve used your debit card 20 times or more that month.
You need to pay in £500 each month.
You need to have two direct debits leaving the account each month.
You need to opt in for online banking and paperless statements to get the interest.
Club Lloyds – 2% on up to £5,000
Open a Club Lloyds account and you’ll earn 2% interest on up to £5,000.
You’ll also be given an annual ‘lifestyle benefit’ and can choose between:
- 6 cinema tickets,
- an annual magazine subscription, or
- annual Gourmet Society membership.
You need to have two direct debits exiting the account each month.
You need to pay £1,500 into the account each month. Failure to do this will see you having to pay a £3 fee.
Nationwide Flex Direct – 5% on £2,500 for one year
With a Nationwide Flex Direct account you’ll get a whopping 5% interest for your first year and 1% interest after that. You can close it after the first year and move the money into a more rewarding account, if you wish.
You can earn interest on up to £2,500. You can put more money in the account if you wish, but this money won’t earn any interest.
You need to pay in £1,000 per month in order to get the interest. You can take this money straight back out again if you like.
You don’t need to have any direct debits exiting the account.
Bank of Scotland Vantage – 2% on £5,000
A Bank of Scotland Vantage current account will give you 2% interest on up to £5,000. You can put more money in the account but you won’t earn interest on the extra.
You need to pay in £1,000 a month and have two direct debits leaving the account. If you already have your direct debits coming out of other accounts, consider setting up small charity donations for £1 or £2.
Tesco Bank – 3% interest on £3,000
A Tesco Bank account will reward you with a generous 3% interest on up to £3,000. You can put more money in the account but you won’t earn interest on the extra.
You need to pay in £750 per month in order to get the interest. You can take this money straight back out again if you like.
Shop at Tesco? Use the debit card and you’ll earn extra Clubcard points.
You need three direct debits leaving the account. If you already have your direct debits coming out of other accounts, consider setting up small charity donations for £1 or £2.
Halifax Help to Buy ISA
If you’re saving for your own home, I’d definitely recommend getting a Help to Buy ISA. Not only will you get 2% interest with the Halifax Help to Buy ISA, your savings will benefit from a 25% top up from the government.
For every £200 you put in the account, the government will top this money up with an extra £50. That’s free money you’re getting!
Since I already had a large lump sum stashed away last April, it made sense for me to open multiple accounts at once. If you’re at the very start of your savings journey, there’s no point opening all the accounts above like I did. Instead, start with one current account. When your current account’s filled, open a second. When they’re both filled, open a third. And so on.
If you’re saving for a home, or you think there’s a chance you might want to buy your own place in the future, it’s also worth opening a Help to Buy ISA alongside your current account(s) and depositing the full £200 in it each month (or as much as you can afford).
*As of April 2016, every basic-rate tax payer can earn £1,000 of interest tax-free, regardless of whether it’s kept in an ISA or not. This means that 95% of the UK population don’t pay any tax on the interest they earn.