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Brits earn more by saving with a current account

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Interest rates on savings products are so pitiful that Brits are earning more from their current accounts, research reveals.

Top paying current accounts offer three times as much as leading easy access savings accounts or instant access ISAs, according to analysis by MoneySuperMarket.

Both Nationwide and TSB offer current accounts with in-credit interest rates of 5% whereas the leading easy access account from RCI Bank pays just 1.55% AER.

Nationwide’s FlexDirect account offers 5% AER on balances up to £2,500, while TSB’s Classic Plus Account also offers the same rate on balances up to £2,000.

Alternatively Santander’s 123 account pays 3% AER on balances between £3,000 and £20,000, making it a good option for anyone with a larger savings pot, though it has a £5 per month fee.

ISAs are not better

Savers hoping for a better return with an ISA will be disappointed too.

The best paying instant access ISA from the Post Office offers just 1.45% AER, again more than three times less than the top paying current accounts.

Fixed term ISA rates fare slightly higher, though still don’t match those of the leading current accounts. Aldermore pays 1.5% AER on its one year fixed, the State Bank of India’s three year fixed comes with 2.3% AER and First Save offers 3.06% in interest on its five year fixed deal. The best Help to Buy ISA deal is through Halifax, which pays 4% AER.

The new Personal Savings Allowance (PSA) – coming into force from 6 April – will make putting money into savings products more attractive.

Under the PSA, basic rate taxpayers (20%) will be able to save £1,000 tax free and higher rate taxpayers (40%) will be able to save £500 tax free. Additional rate taxpayers (45%) are not eligible for the allowance.

Kevin Mountford, banking expert at MoneySuperMarket, said: “Banks have upped their current account interest rates in recent years in order to create more competition within the market and attract customers. It’ll be interesting to see how the new personal savings allowance, being introduced in April, will prompt people to reconsider their savings habits.”

One warning to mention. Many of the higher in-credit rate current accounts require customers to meet a minimum funding amount or cap the balance for which interest is paid, while some market leading savings deals have restrictions, so it is important know what those may be before you make the switch.

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