Many people rely on instant access savings accounts for their emergency funds – as a safe place to keep easily-accessible cash for a rainy day. However, with this year’s crop of easy access savings accounts currently hovering around the 1.5% mark, the returns on this kind of savings option could look less than tempting. Therefore, it may come as a surprise to find that you could get 5% interest from a current account.
Nationwide’s FlexDirect account offers 5% interest on in-credit balances up to £2,500 for the first year, which works out at 4.89% gross pa. This is significantly better than current easy access savings rates and also beats several fixed rate accounts, with the added bonus of being able to access your money whenever you need to.
What are the conditions?
In order to benefit from this rate, you will need to pay a minimum of £1,000 a month into the account. You will then earn interest on any money held in the account up to a maximum of £2,500. This means that, while you are free to pay more into the account, you’ll earn interest on the first £2,500 of your balance each month but you won’t get any interest on any part of your balance over £2,500.
How to use a current account as a savings account
Although FlexDirect is a current account, you can operate it as a savings account in the following way, because the 5% interest rate is not dependent on you using it as your main current account.
Firstly, you need to transfer a minimum of £1,000 from your main bank account into the FlexDirect account at the beginning of each month. You can then transfer this money back to your main account, leaving the amount you want to save in the FlexDirect account.
For example, if you wanted to save £200 a month, you would transfer in £1000 and then move £800 back into your current account. The remaining £200 will then sit in your FlexDirect account, earning you 5% interest, for the rest of the month. Interest is calculated monthly and is paid on the 1st of the following month. If you saved £200 each month, you would have £2400 after one year before interest is added, meaning that you would still be eligible to earn 5% interest on the full balance.
The advantages of this method are twofold:
- Because you are not using the FlexDirect Account as an everyday spending account, you won’t be tempted to spend money allocated as savings that could otherwise be earning you interest.
- The 5% interest offer applies to in-credit accounts only. While there is the option of an overdraft, accidentally going into it by spending money from the account would defeat the object of getting 5% interest.
For people who are just starting to save, or who want a top-up emergency fund that’s easy to access and also pays a competitive rate of interest, this account could provide an alternative to existing instant access savings accounts.
Other Nationwide FlexDirect benefits include:
- Earn interest on any balance up to £2500 – even if you can only afford to save £10 a month, you can still benefit from 5% gross interest
- No account fees or Direct Debit requirements – as long as you pay £1000 minimum into the account each month, there are no other minimum activity requirements
- Online, phone and mobile banking
- Instant access – you can withdraw up to £500 cash per day using your debit card
Points to consider
This method of saving may not be right for everyone, and there are several points you should take into account before opening a FlexDirect account for this purpose:
- This rate is fixed for first 12 months and then reverts to 1.00% gross pa/AER variable afterwards. Therefore you may wish to shop around for an alternative savings option when the deal comes to an end.
- You must pay £1,000 or more into your account each month to receive in-credit interest with FlexDirect. If you fail to do so you will not receive any interest that month.
- The £1,000 a month that is paid in must come from a non-Nationwide source – for example, from your existing current account or directly from your employer.
- You can hold more than one FlexDirect current account, but you will only receive the 5% interest offer on one account.
Click here for more information on current accounts that pay interest >>
