Current accounts that pay out interest on your balance are few and far between nowadays - but once you know where to look, there are some good options available.
Savings rates are at an all-time low, providing a good incentive for checking out alternative ways to make your money work harder - you could be earning as much as 5 per cent on your in-credit bank balance every month.
We have scoured the small print to round-up the best interest-paying accounts. This page is kept up-to-date throughout the year - bookmark it for the very latest developments.
Free money: We pick the best of the interest-paying current accounts Nationwide - 5% interestNationwide is offering the highest available interest rate on a current account.
Best interest rateNationwide's FlexDirect account pays out 5 per cent in-credit interest on balances up to £2,500 for the first year - not bad considering most easy-access savings rates have slid in recent years to an average 0.77 per cent, according to Moneyfacts.
Account holders are also eligible for a 0 per cent overdraft for the first 12 months, and reduced fees of 50p per day for arranged overdrafts after that.
You must pay in a minimum monthly income of £1,000. On the last day of every month Nationwide will calculate the interest you've earned each day and then pay you this interest on the first day of the next month.
Nationwide normally pays this interest 'net' of any tax, which means it deducts any tax due and passes it to the government for you.
Plus, if you’re accepted, you'll be eligible for the Nationwide Select credit card. It gives 0.5 per cent cashback, cheap overseas spending and other perks.
Watch out
If your income drops and you can't pay in £1,000, you won't receive any interest that month.
The 5 per cent interest deal ends after a year, when it drops to just 1 per cent. So it may be worth looking elsewhere after the 12 months for a better return on your money.
You get an interest-free arranged overdraft for that 12 months, but after that a flat rate charge of 50p per day applies, this will be costly for those who regularly go overdrawn compared to a typical interest-charging overdraft.
Unarranged overdrafts cost 50p per day for balances under £10 and £5 per day after that, capped at £60 per month.
If you like to carry out your banking face-to-face, this account might not be good for you because you can only access internet or telephone services as a FlexDirect customer.
This is Money verdictAccounts that are good for both in-credit and overdrawn customers are few and far between. This account is a market-leading option for the first 12 months, but you may want to switch to another account once the introductory offers have gone.
Interested? Check out the full details on the Nationwide FlexDirect account
Lloyds TSB - 3% interest Warm welcome: Lloyds will pay customers up to 3% interestBest interest-paying current account for those with a big in-credit balance.
Best for big balancesLloyds TSB offers new and existing customers the chance to earn up to 3 per cent interest on its current accounts with Vantage.
You can add Vantage to the bank’s range of current accounts for free in order to get access to tiered levels of interest up to 3 per cent, which are available dependent on how much money you keep in your account.
Lloyds TSB’s Classic Account with Vantage for example, pays interest at 3 per cent on balances of between £3,000 and £5,000 and doesn’t charge a monthly fee.
Interest reduces to 2 per cent on balances of between £1,000 and £3,000, and 1.5 per cent on balances of less than £1,000.
Watch out
This account is probably not a good option for you if you often find yourself overdrawn. Even if you go into the red just the once you will miss out on interest for that entire month.
There is a £10 overdraft buffer and a small £25 interest and fee-free planned overdraft, but that's not much leeway if you fall into the red.
After that, Classic Account customers with Vantage that dip into planned overdrafts will be charged a one-off £6 fee, and 1.53 per cent interest - this will quickly cancel out any interest cashback you may accrue. Planned and unplanned overdraft fees vary on other Lloyds TSB current accounts.
However, Lloyds TSB still rewards those only able to maintain a smaller amount by paying 1.5 per cent on balances as low as £1. This is comforting, especially if you consider that most bank accounts don’t pay any credit interest at all at the moment.
In order to start earning interest you have to deposit at least £1,000 a month.
This is Money verdictFor most people on average salaries with average outgoings, this top rate of interest is unlikely to be paid out. So it's not for everyone. On the other hand, if you hold an average £5,000 or more in your Lloyds TSB current account, you will theoretically clock up £150 in interest per year (before tax), which is one of the best returns available on a current account.Although Nationwide offers a higher 5 per cent interest rate, the maximum amount it pays out on is £2,500, which would earn a year's worth of interest of £125 (again before tax). Remember, you would have to maintain both balances for an entire year to maximise your returns - and this may not be realistic. Lloyds TSB may pay out on a bigger balance, but if you have a smaller balance it is best to go with Nationwide, which pays out 3.5 per cent more if you have less than £1,000 in your account.On the other hand, Nationwide customers will probably want to move after a year when the 5 per cent deal drops off, whereas for Lloyds TSB customers there is no limited period - although the offer could easily change.Interested? Check out the full details on the Lloyds TSB Classic Account with Vantage
Coventry Building Society also offer an interest paying current accountIf, for whatever reason, you would prefer not to bank with Nationwide or Lloyds TSB, with Coventry you could earn 1.1 per cent on your balance when you deposit at least £1,000 each month.
This includes a first year bonus of 0.85 per cent for the first year, which means your interest rate will drop off to just 0.25 per cent after 12 months.
There are no rules about maintaining a minimum balance - interest is calculated daily and credited to your account monthly.
Account holders are also offered a £250 interest-free overdraft, just in case you go overdrawn.
Interested? Check out the full details on the Coventry First account
Santander: offers the best current account for cashbackSantander - 1 to 3% interest and perks
The Santander 123 current account is an intriguing proposition, it pays both cashback on spending and interest on balances. But it also charges a fee.
Interest on savings and extras
With savings rates stuck at all-time lows, this account could also be a good alternative to savings accounts - the bigger your balance, the more interest is paid on the account.
To start with, for credit balances of £1,000 or more, the 123 account will pay an AER of 1 per cent on the entire balance.
Once your balance reaches £2,000 or more, you will earn interest of 2 per cent, and if it reaches £3,000, the maximum interest of 3 per cent will kick in. Interest is clocked up on a daily basis and will depend on what you have in your account that day.
If your balance falls below £1,000 on any day of the month - even by £1 - you will earn no interest at all on the entire balance for that day.
Cashback
Cashback: How much could you be making?As well as the potentially high interest benefits, the 123 account could be a smart choice because it really makes your money work for you, thanks to monthly cashback on key services such as mortgage payments, council tax bills, electricity, gas, mobile and home phone, broadband and TV packages.
Explaining how the cashback system works is a little long-winded - but stick with us, it is far from complicated and simply means there are lots of different ways to make money!
If money back on your bills is the reason you want to switch, check first that your supplier is eligible - not all are included in the scheme, particularly smaller energy firms. All bills must also be paid by direct debit.
As you might expect, the 123 aspect of the account name is a running theme. As well as spelling out what interest rates you are entitled to (1 per cent, 2 per cent and 3 per cent) on your balance, it also sets out the cashback theme on services.
This includes 1 per cent on your Santander mortgage (up to maximum monthly mortgage payments of £1,000), and on any spend on water and council tax bills that come out of the account.
Electricity and gas bills generate 2 per cent, with 3 per cent from spending on mobile, home phone, broadband and paid-for TV packages.
Household bills exclude your TV licence, maintanance/insurance contracts, commercial use or commercial mortgages.
Both interest and cashback you earn is paid directly back into your 123 account on a monthly basis.
Watch out
There is a monthly fee of £2, and to be eligible for cashback services you must set up a minimum of two direct debits and pay in at least £500 every month. But to get the most benefit from this account, it's best to retain a credit balance of at least £1,000 - this might be easier if you are a couple sharing the account with two salaries.
This account is really not for you if you often find yourself in the red. Arranged overdrafts are charged at £1 a day, capped at 20 days a month. Unarranged overdrafts shoot up to £5 a day with no cap on unauthorised borrowing.
Santander says that you will not be charged more than £95 in fees for any one month. At the moment they are also offering a free arranged overdraft for four months if you switch to the 123 account using their switcher service. The size of the overdraft will depend on your circumstances.
This is Money verdictSantander's 123 really does offer something different and rewards both saving and spending. If there is any chance of you slipping into your overdraft, there is little point applying for the account as the combined charges and monthly fee are likely to cancel cash benefits.
Prospective account holders can be new customers or already bank with Santander. However, even if you are won over by the range of benefits included in this account, recent negative reports surrounding Santander's customer service could put you off taking the leap.
Interested? Check out the full details on the Santander 123 account
Halifax - £5 per monthHalifax offers an alternative for those looking for an interest-paying current account as it offers a cash incentive to join and £5 per month
Regular cash each month and money to sign up
Halifax offers a lump sum, £50, to new customers who take out a Current Account, Reward Current Account or Ultimate Reward Current Account.
If you chose to go for the popular Reward Current Account you can also get £5 every month when you pay in at least £1,000 monthly.
That’s an extra £60 a year on top of the cash lump sum of £50, which is paid as soon as you apply.
To put this into context, £60 per year on an average £1,000 balance is 6 per cent, whereas on a £2,000 balance it is 3 per cent.
The other bonus with this account is that it comes with a six-month interest-free arranged overdraft should you need it. Depending on your situation this could be up to £5,000.
Watch outThe good news is the period of time you’ll get the £5 a month for is currently indefinite – although Halifax reserves the right to change this at a later date if it chooses to. From May 1 this won't be paid in any month you go overdrawn.
However, if you often fall the wrong side of the £0 mark, overdraft charges on the account are pretty high – up to £3 a day on planned balances of £3,000 and above. Unplanned overdrafts cost a whopping £5 a day, so these will soon wipe out the monthly cash incentive.
What's next?
From May 1 2013, the Reward Current Account will only be available to those who use it as their main bank account. You'll need to have at least two different direct debits set up on the account andpay in a new, lower, minimum of £750 per month.
You will only be eligible for the £5 reward if you remain in credit.
Halifax will also add a fee free overdraft buffer of £50 on these accounts.
Interested? Check out the full details on the Halifax Reward Current Account
WHAT IF YOU DON'T HAVE A BIG BALANCE?Making your money work harder in these times of low savings rates is a must, so picking an interest paying account could be a good option - especially worthwhile if you have a big bank balance.
If you don't, there's no reason why you should miss out on free money.
Some banks, like the Halifax option above, will reward you for switching to their current account with a cash incentive. First Direct's First Account is currently one of the best offerings - in fact, depending on your balance, you could end up earning more than you would on an interest-paying current account.
Free money
On top of being renowned for customer service, not only does First Direct offer £125 if you open a First Account, but if you wish to switch to another bank within 12 months, the bank will give you an additional £100 and help you to move.
Interest-free overdraft
Another bonus is the £250 interest-free overdraft. After that, interest is charged at 15.3 per cent - still a fairly competitive rate - up to the formal overdraft limit of £500.
Watch out
Before getting too carried away daydreaming of ways to spend the free cash, it is worth bearing in mind that unless you credit your account with £1,000 every month you will not be entitled to the £125.
More importantly, you will have to pay a monthly £10 fee, although if you fall into below £1,000 per month bracket, this can be avoided by taking out another First Direct product, like a credit card. First Direct will not consider anyone with 'adverse credit' for this account.
This is Money verdict
First Direct boasts many satisfied customers and it will give you money to join and money to leave if you don't like it. However, First Direct does not have any branches so if you are the sort of person who likes to do their banking face-to-face, this account may not be for you.
Also, if your balance is always firmly in credit, it may be a better option in the longer-term to find an interest-paying current account. Shop around to see how interest rates compare with the £125 bonus.
Interested? Check out the full details on the First Direct First Account
