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Big bank with 3.6million customers axes popular feature TODAY and customers could miss out on cash
How to avoid missing out on free cash on your bank accounts
STARLING customers should act now to avoid missing out on free cash as the bank axes a key feature from its accounts.
From today, the bank will no longer pay interest to customers whose current accounts are in credit.
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That means if you have cash languishing in your bank account, it won’t automatically make money for you.
Instead, you’ll need to move the money into a savings account if you want it to earn interest.
Before today, the bank paid 3.25% interest on cash balances worth up to £5,000. This would get you an extra £162.50 a year if you had £5,000 or more constantly sitting in your account.
Now, that service has been scrapped.
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However, Starling has launched an easy access saver account, so its customers can still benefit from earning interest.
This account pays 4% AER on balances of up to £1million, and customers can withdraw or add money as often as they like without penalties.
This rate hasn’t changed despite the fall in the Bank of England base rate announced last week. This rate, which the BoE uses to charge high street banks, fell from 5% to 4.75% in November, and then to 4.5% on February 6.
The falls prompted many banks to slash savings rates, but a Starling spokesperson confirmed after the latest announcement that its easy saver will stay at 4%.
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Starling announced that it would be axing interest for current accounts back in November, and says that the changes are based on customer desires.
A spokesperson told the Sun: “We regularly review our products so we can be the best bank we can be and help our customers achieve their financial goals.
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“We learned from our customers that what they wanted was a separate account for their savings. So, we launched our easy saver, which enables them both to earn interest on bigger balances and to move their money without penalty.”
All personal current account customers can apply for an easy saver account. However, opening an easy saver account is subject to meeting eligibility criteria.
Of course, using a savings account means that you have to physically move your money, and you won’t earn interest on the gap between earning your salary and spending it when it sits in your bank account.
If you still want a bank that pays interest on your current account, there are plenty available.
App-based bank Kroo pays 3.65% on balances of up to £500,000, while Nationwide will pay 5% up to a max balance of £1,500. To qualify for the Nationwide deal, you need to pay in at least £1,000 a month (for instance via your salary going into the account).
Generally, you’ll get much better rates by moving your money into a savings account, but before settling on the Starling one, it’s worth shopping around.
Currently, there are several easy access accounts that beat Starling’s, although some rates may drop following the base rate decision.
The best accounts we can find with unlimited withdrawals include Chartered Savings Bank, which is paying 4.57%. If you won’t need frequent access then consider Coventry Building Society, which pays 4.85% and allows you to access your money four times a year.
If you’re planning to have more than £20,000 in savings, it’s worth considering an ISA. The best easy access ones include Trading 212 which pays 5.03% and Moneybox, which pays 5.02%.
The benefit of an ISA is that you won’t have to pay tax on the interest you earn. Basic rate taxpayers can earn up to £1,000 interest on savings tax-free, but after than will have to pay the taxman. ISAs avoid this, and you can pay up to £20,000 into ISAs each year.
If you’re earning 5% on your savings, you need to have £20,000 tucked away before you breach the savings allowance if you’re a basic rate taxpayer. At this point, you should consider an ISA.
If you pay higher rate tax of 40%, then your personal savings allowance is just £500 a year. This means with an interest rate of 5% you can only have £10,000 saved before you breach your personal savings allowance, at which point an ISA might be a better option.
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Additional rate taxpayers have no savings allowance at all, so might want to consider maxing their ISA allowance each year before looking at traditional savings accounts.
Pensions are also a very tax efficient way to save, since they attract tax relief from the government. However, your money will be locked away until you are 55 (57 from 2028), so this should be money that is dedicated to your long-term future, rather than rainy day savings.
SAVING ACCOUNT TYPES
THERE are four types of savings accounts fixed, notice, easy access, and regular savers.
Separately, there are ISAs or individual savings accounts which allow individuals to save up to £20,000 a year tax-free.
But we've rounded up the main types of conventional savings accounts below.
FIXED-RATE
A fixed-rate savings account or fixed-rate bond offers some of the highest interest rates but comes at the cost of being unable to withdraw your cash within the agreed term.
This means that your money is locked in, so even if interest rates increase you are unable to move your money and switch to a better account.
Some providers give the option to withdraw, but it comes with a hefty fee.
NOTICE
Notice accounts offer slightly lower rates in exchange for more flexibility when accessing your cash.
These accounts don't lock your cash away for as long as a typical fixed bond account.
You'll need to give advance notice to your bank - up to 180 days in some cases - before you can make a withdrawal or you'll lose the interest.
EASY-ACCESS
An easy-access account does what it says on the tin and usually allows unlimited cash withdrawals.
These accounts tend to offer lower returns, but they are a good option if you want the freedom to move your money without being charged a penalty fee.
REGULAR SAVER
These accounts pay some of the best returns as long as you pay in a set amount each month.
You'll usually need to hold a current account with providers to access the best rates.
However, if you have a lot of money to save, these accounts often come with monthly deposit limits.
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