Is it Worth Switching to a High Interest Current Account?

There are many banks and building societies now offering current accounts which have higher interest rates than savings accounts. This may seem rather odd and you may wonder whether it is worth switching. The reason that banks offer this is because they want your business. They can make money out of you in other ways and hope that you will switch to them and use other services that you will have to pay for.

If you have an overdraft or get overdrawn from time to time, then you should be really careful about switching. You need to take a look at the interest rate on overdrafts as well as charges, for both authorised and unauthorised and see how they compare to what you are being charged now. Bear in mind that the amount of overdraft they offer you may be smaller than what you currently have so this may mean there is a higher risk that you go into an unauthorised overdraft and that could cost you a significant amount of money. If you get overdrawn regularly then it is much more sensible to find a current account with a cheaper overdraft interest rate rather than a good interest rate on the money you are holding in the account.

It can be so easy to be tempted in by a high interest rate like this but not consider the consequences. It is worth remembering that the bank is there to make a profit and so it is highly likely that they will charge more for overdrafts on this sort of account to make back the money that they are crediting accounts with. This means that if you do go overdrawn, not only will you be missing out on getting paid the interest you earn when you hold money in the account but you may also be paying more in interest or charges on your debt. It is therefore well worth giving it some serious thought.

Switching banks may seem like a lot of effort and you may feel that you are not prepared to do it. Some people do it regularly, chasing the best interest rates. As there is now legislation in places which ensure that banks help you when you are switching things should go smoothly and most people do tend to find this. You can look for feedback online if you are concerned.

It is worth checking the small print before you do switch though. Some banks will only pay interest on a small amount of money, perhaps the first few thousand you have in the account and then nothing on amounts over that. Although it will still get you more than you will get in a current account that pays no interest, you will not be able to use it like a savings account and pile lots of money in there and hope to gain lots of interest. It is more likely that you will get about £5-£10 a month. This however, is still better than nothing and many people think that it is worthwhile and will switch. As interest rates go up, it may mean that these rates will also go up, but that will depend on the specific bank and whether they feel that it will be worth their while to do this.

Making this decision will really depend on just a few factors. You will need to decide whether the amount of extra money that you can make is worth it, in your opinion. You will only have to go through the hassle of switching once and you could gain some money each month for doing it. However, if you often use your overdraft then it may not be worthwhile and you will need to calculate whether you feel it will still be financially savvy to do so. You also need to think about your loyalty to your current bank and whether you feel happy changing to another. This is the thing which holds many people back so it is wise to chat to friends and family and look online to find out more about the place you are considering switching to so that you can find out more. You may be able to gather enough information to trust that they are a bank that you would like to deal with or you may feel that you would rather stick with the one you are with or choose another one entirely.