Do current accounts pay interest? Everything you need to know

Most standard current accounts pay zero interest. But some – particularly from digital banks and challenger providers – do pay a return on your everyday balance, offering rates between 2-5%.  Whether it’s worth switching depends on how much you usually keep in your account, whether any fees eat into your returns, and what else the account offers beyond the rate itself. 

The short answer: do current accounts pay interest?

Some do, but most don’t. Most standard UK current accounts pay 0% on your balance – your money is there when you need it, but it earns nothing in the meantime. The good news is that fee-free current accounts with interest do exist – our very own Biscuit current account, for example, pays interest on your everyday balance at no monthly cost. 

How current account interest works

If you’re new to what a current account involves – or just haven’t looked closely at how interest is calculated – here’s what you need to know. 

What is AER and why it matters

AER stands for Annual Equivalent Rate. It’s the standardised figure that shows how much interest you’d earn over a full year, assuming interest is compounded monthly. All banks are required to quote AER, which makes it the fairest way to compare rates across different accounts. 

If your current account pays 2% AER and you keep an average balance of £3,000 throughout the year, you’d earn around £60 in interest – automatically added to your account, without you needing to do anything. 

Gross vs AER: understanding the difference

The gross rate is the actual interest rate applied to your balance before compounding is taken into account. Compounding is where your interest earns interest – each month, the interest you’ve earned is added to your balance, and future interest is then calculated on that slightly larger sum. The AER factors in monthly compounding, which is why it’s typically slightly higher than the gross rate for the same product. 

For example, a monthly gross rate of 1.98% works out at 2.00% AER over a full year. When comparing accounts, always use the AER as your benchmark – it reflects your actual annual return rather than just the headline number. The Bank of England’s guidance on interest rates provides useful background on how rates are set and what influences them.  

Most current accounts, Biscuit included, pay interest gross – meaning nothing is deducted for tax at source. If you earn interest enough for tax to be due, that’s handled through your Personal Savings Allowance. 

Interest tiers and thresholds

Some interest-paying current accounts don’t apply the same rate across your entire balance. Instead, they use a cap – paying the headline rate on the first £1,000, £2,000, or £5,000, and nothing on amounts above that threshold. 

This is definitely worth checking carefully before you switch. An account advertising 5% AER might only apply that rate to the first £1,500 of your balance – meaning the maximum you could earn is £75 a year, regardless of how much you keep in the account.  

With Biscuit, there’s no cap – every pound of your balance earns 2% AER. 

Which banks pay interest on current accounts?

Several UK banks offer interest on current account balances, though rates, caps, and eligibility criteria vary. Below is a selection of fee-free accounts – those with no monthly charge – as of April 2026. 

Fee-free interest-paying accounts

Some accounts pay interest on your everyday balance at no monthly cost. Biscuit by Zopa is one example – you earn interest without paying a penny in fees.  

Interest rates are variable, which means they can go up or down over time. Zopa reviews them when the Bank of England base rate changes, and will always let customers know in advance if anything’s moving. 

Other providers offer interest too, including Nationwide (with a higher headline rate on the first £1,500, but only for the initial 12 months) and Kroo (at a variable rate with a large balance cap and no eligibility requirements). 

Premium current accounts with interest

Packaged or premium accounts charge a monthly fee – typically £5–£25 – in exchange for a bundle of benefits, which sometimes includes a higher interest rate on your balance. The key question is whether the interest you’d earn, once you subtract the annual fee, actually makes the account worth it. That calculation depends on your typical balance and whether you’d genuinely use the other perks. 

Does Lloyds pay interest on current accounts?

Lloyds offers interest through its Club Lloyds account which, as of April 2026, pays a tiered rate up to 3.00% AER/2.96% gross variable on balances between £1 and £5,000. The account is free if you pay in at least £2,000 a month; otherwise a £5 monthly charge applies. As with all variable-rate accounts, it’s worth checking the current rate directly with Lloyds, as rates can change. 

Are fee-paying current accounts worth it for interest?

Calculating your real returns

The sum is straightforward: (balance × interest rate) – annual fee = net annual return. 

If an account charges £180 a year and pays 3% AER on balances up to £2,000, the most you’d earn in interest is £60. After fees, you’d be £120 worse off than if you’d kept the same money in a free account paying even 1% AER. The maths often favours free accounts, particularly when your typical balance is modest. 

Example comparison: fee vs free accounts

At a £2,000 balance, the free account is £160 better value. The picture only shifts in favour of a fee account if the bundled extras – travel insurance, breakdown cover, mobile phone cover – are things you’d pay for separately anyway. 

How to find the best interest-paying current account

Comparing interest rates and terms

When comparing accounts on interest, don’t stop at the headline rate. It’s worth checking: 

• The AER (not just the gross rate) 

• If there is a balance cap – how much of your balance the rate actually applies to 

• Whether the rate is introductory and time-limited, or ongoing 

• Any monthly deposit or Direct Debit requirements 

• Whether interest is paid monthly or annually 

Comparison sites like MoneySavingExpert are a useful starting point, since current account interest rates can change at relatively short notice. We’re pretty chuffed that Biscuit is top-rated by MoneySavingExpertfor cashback, perks, and regular savings. 

What to look for beyond interest rates

Interest is one part of the value picture. A current account that earns nothing on your balance might still be worth more overall if it offers cashback on bills, access to a competitive linked savings rate, or a well-designed app that makes day-to-day money management genuinely easier.  

The best-value accounts combine interest with additional features – cashback, competitive savings access, and simple tools for managing money. When comparing, add up the total value (interest plus cashback, minus fees) rather than fixating on a single headline rate.

Our guide to the difference between savings and current accounts covers which type of account works best for different financial goals. 

What is a good interest rate for a current account?

2–5% AER is a strong benchmark for current account interest in the UK. Below 1% AER is generally not worth prioritising for the interest alone. The government’s guidance on savings interest and tax is useful if you’re earning enough to approach your Personal Savings Allowance. 

Bear in mind that savings accounts – particularly fixed term and easy access products – often offer higher rates than current accounts. If earning maximum interest is the priority, a dedicated savings account will likely serve you better. But an interest-paying current account earns you something on money you’d be keeping there anyway. That’s never a bad thing. 

Ready to earn on your everyday balance?

Biscuit by Zopa is our free current account that pays 2% AER on your balance, 2% cashback on up to £125 of Direct Debits a month, and gives you exclusive access to a 7.10% AER Regular Saver – all with no monthly fee and no minimum deposit. It only takes a few minutes to open in the Zopa app.