Should I change my bank account to get better interest rates?

Q I keep reading that consumers should shop around to get the best rates on their current accounts and, as I have banked with Lloyds TSB for 13 years now, I'm wondering whether I should switch.

I earn ?15,000 a year and always have money left in my current account at the end of each month - where it just languishes.

PN

A Lloyds TSB is one of the worst offenders when it comes to banks paying poor - or no - interest on credit balances in current accounts. It pays a measly 0.1%, even if you regularly keep ?5,000 in your account!

And Lloyds is not alone in its penny-pinching: Barclays, HSBC, Northern Rock, Woolwich and Royal Bank of Scotland all pay the same miserable 0.1% rate.

You can certainly do better for your money if you want to switch banks. Online banks tend to be the most generous - Smile pays 3% interest on balances as low as ?1, and Intelligent Finance pays 3.15%, while Cahoot pays up to 4.03% if you can do without a chequebook.

First Direct's bank Account pays 2%, provided you pay in at least ?1,000 a month, which might be a bit of a stretch on your salary. Abbey National pays 3% for the same monthly payment arrangement, while
Halifax pays 2%. Finally, Alliance & Leicester pays 3.1% on any credit balance provided you pay in at least ?500 a month.

But before you go tearing up your Lloyds TSB chequebook, ask yourself what you require from your current account. Will you be as comfortable with a bank that has no high street presence, for example? Will you be happy to bank only online, or by post? Do you need an overdraft and would you be willing to pay for one?

You have a substantial banking relationship with Lloyds which may stand you in good stead if you wanted a loan or a mortgage, and while I in no way agree with high street banks taking advantage of their high profile to skimp on the interest rates they pay, there is more to banking than interest rates.

If you're concerned about money languishing in your account, you might be better off setting up a savings account and transferring any monthly current account excess into it. Interest rates are at a 35-year low, but you could still expect at least 4% for your money. Scottish Widows pays 4.05% on a minimum balance of ?100, while Nationwide's e-Savings online account pays 4.25% on any balance.