High Interest Accounts – The Pros and Cons
Initially a high interest bank account will always look tempting to most people. If you can receive a higher rate of interest on your everyday money, such as your wages and general cash coming into your account without needing to assign a percentage of that to a savings account for a rainy day, then most people would think that is a great deal and possibly worth moving bank accounts for. And in many circumstances it would indeed be worth moving banks.

However before moving your bank account over to one of the new special high interest accounts, just make sure you read all the banking small print. Very often the new banking provider may only pay the higher rate of interest if you are depositing an agreed minimum amount each month into the bank account. It may only pay the interest on cash over a certain amount, say for example anything over £10,000. Alternatively it may operate the other way round, only paying the high interest rates on amounts of cash up to a certain figure, after which point they then revert to paying the standard much lower rate of interest on the rest of the balance.

If any of these rules apply to the high interest accounts you are considering opening, make sure you calculate the exact amount of interest you will accrue on the total amount of money you are moving over. If there is an interest rate split, work out how much interest you will make at the higher rate for the allowed amount, then also work out the interest you would make on the rest of your money at the lower rate, and average it out. This will then give you a true indication of whether the higher interest account offer is actually as good as it seems and will make you financially better off, or if the offer is just dressed up to entice you over to open a bank account when in fact you’d probably be in the same situation having earned roughly the same amount of interest after opening the new account and moving away from your existing bank that you may have previously been happy with.