Headline grabbing current accounts – are they what they seem?

A number of key players in the current account marketplace adopt a practice of advertising headline grabbing interest rates but only pay the high rate of interest on a relatively small balance held in each account, leaving customers short changed.

Rachel Haworth, Head of Marketing at the Coventry says: “We believe customers could be misled by headline rates and that a significant amount of account switching is being carried out, only for the actual return on their entire balance to be considerably less than they were expecting. The rate earned on a significant portion of each customer’s balance can be as low as 0.10%, far less than the headline rate being advertised.

“As a result, customers moving to earn a better return on their current account may potentially end up switching to the wrong account.

“For example, a customer switching to a top-rated account, and keeping a steady balance of £2,500 deposited throughout the year, will indeed earn a good rate of interest. However, this is not how many people operate current accounts. Customers who have their salaries paid into their current account will have a significant balance at the start of the month (even more so in the case of joint accounts) and therefore find a sizeable proportion of their money earning almost no interest at all. This is made worse if the headline rate encourages them to leave any amount of savings in the account.”

Coventry First is the Coventry's current account that pays a very competitive rate of interest, not only on the first £2,500 like so many other high interest current accounts, but on the entire balance (up to a maximum of £250,000).

The account offers the usual current account functionality – a VISA debit card, direct debits, standing orders, and an interest free £250 overdraft. There is a minimum funding requirement of £1,000 per month.

“Coventry First is ideal for those customers who want to earn a high rate of interest on their entire current account balance. With such a competitive rate, they should also consider leaving their savings in the same account.” added Rachel Haworth.