Alliance & Leicester relaunched its £100 reward deal this week, whereby new customers switching to its Premier Current Account get a £100 reward. But is this the best place for your money?
If you are regularly overdrawn, then yes, it’s a good deal. You get the £100 regardless of whether you are in credit or not, as long as £500 a month is paid into the account. The overdraft service is also currently top of the best-buy tables. For the first year your overdraft is interest free, and after that you’ll be charged 50p a day capped at a maximum £5 a month.
But if you are usually in the black, this isn’t the account for you. There are three decent current-account options at present. Halifax and Bank of Scotland both offer Reward Current Accounts, which pay you £5 a month, Alliance & Leicester and Abbey both offer accounts paying 6% interest, while FirstDirect will give you £100 for joining, plus another £100 if you leave after six months (see below).
So which is best? As with so many things, the devil is in the detail. You need to look at your banking habits and work from there. If you pay over £1,000 a month into your account, but your average balance is much lower – ie, your salary goes in, but the bills then go out leaving you with a fairly low average balance – then the Halifax account is attractive. This is because you get £5 a month regardless of what your average balance is, adding up to £60 – net of tax – over the year.
However, if you have a higher average balance, then you might want to look at Alliance & Leicester’s Premier Direct account, which pays 6% for the first year on balances up to £2,500. If you maintain a balance of £2,500 over that time, you would get interest of £120 after tax (£90 if you are a higher-rate taxpayer). That’s a lot better than the £60 from Halifax. So if you can maintain a high balance in your current account, then Alliance & Leicester and Abbey beat Halifax. But if your average balance is around £1,500 or less (or roughly £1,300 or less for a lower-rate payer), then Halifax or Bank of Scotland is better.
However, most people would be better going for a straightforward £200 with FirstDirect. The bank is offering £100 to anyone who opens a 1st Account.It doesn’t pay any in-credit interest but you get a £250 interest-free overdraft. Plus if you leave after six months you’ll get another £100. The only drawback is that FirstDirect may actually be good enough that you won’t want to leave – a Watchdog survey last year found that 96% of FirstDirect customers would recommend the bank to others. But even if you don’t leave you’re still only £20 at most worse off than if you had chosen one of the other banks, and if you’re a higher-rate payer £100 is better than you’d get from any of the other accounts. So if you’re going to switch, we’d go for FirstDirect.