Earn 5% interest on savings using current accounts- the Which!!! current account roundabout
Savings accounts are so 2007. Even if you disregard all the ridiculous criteria and penalty withdrawal clauses , the simple fact of the matter is that, much of the time, current accounts pay more interest than savings accounts. This means that smart people will save their money in current accounts rather than savings accounts, after all, it’s just a name right?
Unfortunately it’s not just a name though, and in order to get the best interest rates on current accounts, there are normally minimum monthly pay-in requirements, and some accounts also make you transfer a minimum number of direct debits. Still, if you have sufficient income, you could turn cash balances earning pitiful rates of interest into balances earning up to 5%.
Our helpful friends over at Which!!! have even come up with a whizzo wheeze that lets you circulate money between accounts in order to get as much interest as possible. It also assumes that you have £6,500 burning a not-very-high-interest hole in your pocket and that you have a further £1000 spare to ‘circulate’ round your accounts. Doesn’t everyone?
This does get quite complicated, so make sure you have a darkened room and a wet flannel handy. We’re calling it the Which!!! current account roundabout, but you can call it what you like.
Setting up the roundabout.
Step 1: Check the interest rates and cash limits for the accounts you are thinking of including on your roundabout. The table below shows you the best rates available on current accounts. Some banks will limit the number of accounts you can open, so check the rules (remembering that you could also open joint accounts in some cases in addition to the maximum number of sole-name accounts). Also check you have £6,500 in your pocket as otherwise this scheme won’t work properly (although you could set up a mini-roundabout using fewer accounts, and therefore require less money on your roundabout)
Step 2: Check the key monthly account requirements – such as fees, minimum monthly deposits and direct debits – needed to qualify for interest or to avoid paying a monthly fee on the account. And then make sure you can comply with those requirements or pick a different account. For example, the roundabout does not include the highly-popular Santander 123 account (which pays cashback as well as interest) nor the Lloyds Club account as both require two direct debits which would interfere with the money flow around this roundabout plan.
Another warning for those attempting to roundabout with less cash- watch out for accounts with tiered interest as you may not be able to earn the top rate of interest..
Step 3: Start by making a Halifax Reward current account your main account. The eagle-eyed among you will notice that this account isn’t even included on the high interest account list. This is because it doesn’t pay credit interest. However, it does pay you £5 a month, which is still money into your account, so this makes it the best starting point, apparently. Note that the £5 per month reward is dependent on you paying in at least £750 a month. The roundabout starts with you sticking £1,000 in this account that will drive around through your high interest current accounts and return to the Halifax each month.
Step 4: Now you need to get your £6,500 out. Stick £2,500 in a Nationwide Flexdirect account (hereafter referred to as the Nationwide account), and another £4,000 split equally between two further TSB Classic Plus Accounts. That’s £2,000 each. Now you have a mobile £1,000 in Halifax, £2,500 in Nationwide and £4,000 in TSB. Now we can start roundabouting.
Step 5: Transfer the £1,000 from your Halifax Reward account into your Nationwide account. This account pays 5% on deposits up to £2,500 but you must make a minimum £1,000 deposit per month. Ta dah! Your transfer-in of £1,000 ensures you will comply with this condition and achieve 5% on your £2,500 deposit. Now you have £3,500 in your Nationwide account.
Step 6: Next transfer £500 from your Nationwide account to each of your TSB accounts (totalling £1,000, meaning your Nationwide account balance falls back to £2,500). These also pay 5% interest on deposits up to £2000 with a minimum monthly deposit of £500 a month. After your transfer, you have not only met the minimum pay in requirement, the balance in each of your accounts stands at £2,500 each. But only £2,000 of this will earn the 5% interest, so what do you do?...
Step 7: You transfer £500 from each of your TSB accounts back into your main Halifax account, along with any interest you have earned. You have now paid over the minimum £750 per month into Halifax to get your £5 reward and you have earned 5% interest on a total savings pot of £6,500.
Step 8: Repeat steps 5 to 7 each month, ensuring you met the requirements of all the accounts and earn the most interest possible on the whole £6,500. Simple. Ish.
While the roundabout sounds complicated, assuming you do have the requisite funds available, and you don’t mind the hassle of setting up four new current accounts, the remaining steps could be easily achieved using standing orders, so you don’t have to actually do anything every month. The other advantage is that the roundabout merely circulates money around itself, so you could set up another current account (eg the Santander 123 if the cashback would be worth your while) that actually receives your income and pays out your direct debits.
Worth a punt?