How current account interest rates work

Current accounts typically have two types of rate, one for the interest paid if you're in credit, and one for the amount charge if you are overdrawn.

What is the Annual Equivalent Rate (AER)?

Loans and credit cards charge an Annual Percentage Rate (APR) on the amount you borrow, whereas current accounts pay you an Annual Equivalent Rate (AER) on your credit. The rate indicates what the amount would be if interest was paid once a year.

The higher the AER, the more interest you'll earn on your credit. It works in the same way for your overdraft, but money is deducted rather than credited.

Can a current account's interest rate change without notice?

Current account interest rates are subject to change; both the provider and the Bank of England can change them. However, your provider should notify you of any interest rate changes before they take effect.

What is a good current account interest rate?

To make a balanced decision about current account interest rates, remember to look at the interest rate for both when you are in credit and if you are overdrawn. A high interest rate on your credit and a low interest rate on your overdraft is the best combination.

Watch out for interest rates on unarranged borrowing - if you go into the red or over your agreed overdraft limit you may be charged and you could also have to pay a high rate of interest on this unauthorised borrowing.

Some current accounts come with tiered interest rates. They work on the basis that different interest rates are applied to your money according to your balance.

This can mean the interest paid on your credit will drop once you pass a certain threshold. Similarly the interest on your overdraft can rise if you borrow over a certain amount.

Does comparing current accounts interest rates make a difference?

Yes, it can help you reduce the cost of having an overdraft by helping you find an account with a lower rate of interest charged on your borrowing.

It can also help you find the best available rate of interest on your credit so you can earn more while your money is sitting in your account.

And the best news is all you need to do to compare interest rates is point your mouse at the Uswitch current accounts service. We compare the current accounts you want to see; whether that is just online banking or student accounts.