Rising interest rates are making people increasingly aware of the potential returns their money can bring.
While many keep their excess cash in savings accounts, a significant amount is held in bank accounts, often without interest.
The average amount on a checking account is £5,700, according to analysis by Nationwide of Caci data.
Only a handful of banks pay credit interest on current account balances. We reveal the top four that do
While savings rates have risen, current account rates have not improved greatly.
In fact, only a handful of banks and building societies offer interest on their checking accounts.
According to the Bank of England, a whopping £230bn is held in non-interest-bearing sight deposits that pay zero interest – essentially current accounts.
To put that in perspective, that is more than the amount of cash held on the entire fixed-rate savings market (excluding ISAS).
Maintaining a healthy balance in a checking account may be important to some people, but they may receive interest for doing so.
We decided to round up the best checking accounts that offer in-credit interest.
1. Rural
Nationwide offers a free introductory credit rate at its expense FlexDirect current account pays a market-leading 5 percent.
The special rate is available for new applications with a balance of up to £1,500 during the first 12 months.
It means that someone who keeps at least £1,500 in the account can earn £75 in interest over the course of a year.
Unfortunately, anyone who has previously had a FlexDirect account is not eligible for this rate.
However, if applicants previously only had a single account, they would qualify for the introductory rate on a joint account and vice versa.
Nationwide offers an introductory in-credit interest rate on its fee-free FlexDirect checking account pays a market-leading 5 percent
To qualify, you must switch from another provider using the Current account switching service (CASS) and a minimum of two active direct debits must be transferred as part of the switch and set up on the new account. CASS does this automatically.
To take advantage of the in-credit interest, holders must pay a minimum of £1,000 each month.
Nationwide calculates the interest earned each day on the last day of each month and then pays this interest on the first day of the following month.
However, if the monthly income deposited into the account falls below £1,000, they will receive no interest for that month.
The 5 percent rate ends after one year. After that, it drops to just 0.25 percent. So it may be worth looking elsewhere after the 12 months for a better return on your money.
2. Kroo
New digital bank Kroo has made credit interest very much its USP in bidding to attract customers.
It currently offers 3.6 per cent credit interest on balances up to £85,000. This will soon change to 4.1 percent on 1 July.
The 4.1 percent would earn it just 0.2 percentage points from the current best buy easy-access savings account, which pays 4.3 percent.
Someone who maintains a balance of £5,000 in the Kroo account for a full year can expect to earn £205 in interest over the next 12 months if the rate remains the same.
Kroo is a fully licensed digital bank founded in 2016. It obtained its full UK banking license in 2022
The app-only bank, which launched its first-ever current account in December, is only the third bank to receive a full UK banking license since 2016, and customers are fully protected by the Financial Services Compensation Scheme.
It bills itself as a “socially conscious” bank and wants to appeal to people by promising to plant two trees for every account opened, aiming to plant a million trees by the end of this year.
In addition to the top interest rate, Kroo’s checking account allows customers to share, track, and split bills.
It also offers zero spending fees when using its debit card abroad and a lower overdraft APR than most major banks.
Anyone who wants to take advantage of the Kroo deal does not have to use the switching service.
It can simply be used as a secondary bank account as there are no fees or requirements for setting up an account.
To create an account, switchers must download the mobile app and go through a five to ten minute signup process.
3. Santander
Santander is new Edge Up account pays 3.5 per cent credit interest on balances up to £25,000.
This means that someone who keeps the maximum balance will earn £875 in interest over the course of a year.
Someone with a balance of £5,000 could expect to earn £175 over the course of the next 12 months – if the rate remains the same.
The new account also offers 1 per cent cashback capped at £15 per month on supermarket and transport debit card spending.
It offers a further 1 percent cashback, capped at £15 per month, for household bills. This includes council tax, energy, mobile, fixed, broadband and paid TV packages.
Santander’s new Edge Up account pays 3.5 per cent credit interest on balances up to £25,000
Unlike some major banks, the debit card is free when used on board, including no Santander fees when using ATMs abroad.
Although it may be that the local ATM charges a fee, as Simon Lambert of This is Money recently discovered during a visit to France.
However, for all its benefits, there are some hoops and costs that potential customers should be aware of.
First and foremost, it comes with a monthly fee of £5 which increases to £60 every year.
Customers must also pay a minimum of £1,500 per month and set up two direct debits from the account.
4. Lloyd’s
Club Lloyd’s also pays interest on balances up to £5,000. On the first £4,000 it pays 1.5 per cent and then between £4,000 and £5,000 it pays 3 per cent. It is not possible to receive interest on any part of a balance in excess of £5,000.
All told, therefore, account holders can earn up to £90 a year of credit interest if they have a minimum of £5,000 in the account at all times.
Club Lloyds: The bank pays in-credit interest. On the first £4,000 it pays 1.5 per cent and then between £4,000 and £5,000 it pays 3 per cent
However, the in-credit rate is unlikely to be the main draw for Lloyds. The Club Lloyds account is currently paying people £150 just for switching.
In addition, account holders can choose a 12-month Disney+ subscription, a choice of six Vue or Odeon movie tickets, a magazine subscription, or Coffee Club and Gourmet Society memberships.
The Disney+ subscription could save someone £79.90 a year. Similarly, an adult Vue cinema ticket typically costs around £11 or £12. That could save £72 on cinema tickets over the course of the year.
However, there is a £3 monthly fee to maintain the account – this is waived each month as long as account holders pay £2,000 or more.
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