Banking institutions that pay the most on savings
M&S Bank is offering current account customers the chance to earn 6pc, but you can get more interest from Nationwide and TSB 
You can earn £78 by putting £3,000 into M&S’s regular saver, but you could earn £21 more by putting the same amount into Nationwide’s FlexDirect current account
M&S Bank is offering all of its current account customers the chance to earn more money on their savings, with a linked Monthly Savings Account paying 6pc.
This means that while the bank’s three current accounts do not pay any in-credit interest, customers will be able to earn 6pc with its “regular saver”, on a maximum deposit of £250 each month. Paying in this amount every month would earn savers £96, before tax, for the first 12 months.
Previously, the monthly saver was restricted to the bank’s two “Premium” current account customers. Premium account customers must pay fees of between £10 and £17.50 each month.
Regular savers offer the best savings rates on the market, but there are a number of catches.
Most will offer the high “headline” rate for an introductory 12-month period only, while others are available only to existing customers who have other accounts.
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While M&S Bank’s current account , launched in May last year, was well received – with a competitive overdraft tariff, no charges for overseas ATM withdrawals, and the ability to earn reward points on M&S debit card spending – with no in-credit interest the account fell a little flat, particularly when compared to other bank accounts paying up to 5pc.
But earlier this month, M&S went some way in addressing this problem by offering customers the chance to earn 6pc.
Paying in the maximum of £250 per month (or £3,000 a year) would earn savers £78, after basic-rate tax is deducted. The rate is only offered for the first 12 months, after which the money will be transferred to the customer’s current account, or if no current account is held, to an Everyday Savings Account paying 0.75pc. After the first year, a saver can still take advantage of the 6pc rate by paying in up to £250 each month again for a second year.
When compared to the highest-paying current accounts, the regular saver is bettered by only two competitors when compared with interest paid on a £3,000 current account balance.
Nationwide Building Society’s FlexDirect will pay interest of £100 (after basic tax) for the first 12 months – the account only pays 5pc for the first year (up to a maximum balance of £2,500), after this the rate falls to 1pc. This is £21 more than with the M&S regular saver.
TSB’s Classic Plus account pays the second highest rate on the market, paying interest of £80 (after basic tax) on an account balance of £3,000 (note that the 5pc is only paid up to maximum balance of £2,000) – £2 more than M&S’s regular saver account.
What providers pay on their current accounts and linked savings accounts
Source: Moneycomms.co.uk. Figures correct as of 19/12/2014
Andrew Hagger, founder of research firm Moneycomms, said: “Current accounts are increasingly becoming the best way to access high rate savings accounts, and if you’ve got a balance in excess of £3,000 and know you’ll always remain in the black then Santander’s 123 account and Lloyds Bank’s Club account will remain a popular choice.
“Lump sum current account credit balances offer the flexibility of being able to access your cash instantly. However, there are a couple of advantages of a separate monthly saver – namely that your savings don’t get muddled up with your everyday spending plus you can clearly track your savings balance and see it grow month on month.”
More: Our four favourite regular savings accounts
More: The best bank account switching offers
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