Current account stacking

Interest rates are very low on most saving accounts and NISAs, but here’s a trick I use to earn the most on my money.

Since we’re saving for our wedding, it seemed stupid to be putting away all this money and just have it sitting there earning practically nothing before it’s spent.

If you’re saving too, or have a lump sum, the answer is instead to put your cash in a new current account. Right now there are a handful that pay pretty decent interest – some as high as 5% AER. The the best you’ll get in an ISA (or NISA as they’re now called) is around 1.5%.

I call it current account stacking. Keep reading below the infographic to find out how it works.

The problem is you’re often limited by how much you can put into current accounts. You’ll also be required to pay in a certain amount of money each month or have direct debits set up. All that means to put away a decent amount you need to open these accounts in a series of different banks, and manage them. But it’s not too tricky if you plan.

Here’s what you need to know.

The rules

1. You don’t have to switch banks to take advantage of high interest deals. Just apply to the banks for a new account. You can have more than one account with different banks.

2. When you open a new current account for your savings and fill it, treat it as a locked account until you need it. Don’t use it for day to day spending.

3. You will probably have to pay in a certain amount of money each month to get the rate.

You don’t need to keep the money you pay into the accounts in there – you can transfer them straight out. Set up standing orders in each account to send money between them.

If you’re organised, you can flow the same money through all the accounts. You start in your main account. When your salary comes in, send some of it to the next account. Then have a standing order to send it on again to the next account. And so on until the money ends up back in the starting account.

Some banks won’t allow ‘internal’ transfers from the same account owner (e.g. from a personal one to a joint one).

4. Most of these accounts require a few direct debits.

Make sure you pay enough additional money into the accounts each month to cover the direct debits. Ideally put fixed amount direct debits in these accounts (such as TV License) so you know how much they’ll be.

5. Each time you apply to open a new current account you will be credit checked. Make sure your rating is ok first through free reports.

It’s also a good idea to space out your credit applications. This includes mobile phone contracts, insurance and utility bills. Don’t do this if you’re planning on buying a house in the next six months or so.

6. Remember that all of these interest rates are before tax. That means you’ll actually get 4% interest on a 5% AER account if you pay 20% tax. If interest confuses you, read my Interest explained article.

7. There are lots of accounts you can use for this, and there are all sorts of considerations – switching bonuses, if you’ve a local branch, whether you pay bills. Most importantly, it’s how long you will save up for and how much! Read my top current accounts for interest blogpost for some of the best accounts you can use.

8. Some banks let you have more than one with them, so you can double the balance you earn on with them. If you’re in a couple you can get them to open their own accounts and also open joint accounts.