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Starling current account customers can earn £13.54 a month on cash parked with the digital bank from tomorrow.

It will pay customers 3.25 per cent in interest on current account balances of up to £5,000.

Starling will pay 3.25 per cent interest on funds held across personal and joint accounts, and connected children’s Kite debit cards. 

Personal account holders could receive £162.50 in a year or £325 if you have a joint account, on the top balance of £5,000.

Starling bank is paying customers 3.25% interest on current account balances

The rate is applied automatically and paid monthly. Balances up to £85,000 are protected by the Financial Services Compensation Scheme.

Starling claims that most of their customers will benefit from the interest on all of their current account balance, as 94 per cent hold £5,000 or less in their account.

Now Starling has called for high street banks to follow suit.

At the moment, other banks paying interest on current account balances include Nationwide, which pays 5 per cent on balances up to £1,500. But this rate is only for 12 months, after which time the rate drops to just 1 per cent.

Lesser known Digital Bank Kroo pays 4.35 per cent on current account balances up to £85,000. 

But from Octopber, Kroo will apply a base rate tracker to its rate, which tracks 0.9 per cent below the base rate – so this rate could start to slip down if interest rates reverse.

Andrew Hagger, a personal finance expert and founder of website MoneyComms, believes the motivation behind Starlings move is twofold.

He says: ‘Starling is looking to reward and retain existing customers but also looking to attract new business via the credit interest rate.

‘While it’s not offering a cash bribe for switching, other bank customers may find this deal attractive enough to move to Starling especially if their own bank doesn’t pay credit interest.’

The most recent quarterly Current Account Switching Service figures, published in July, revealed a drop off in Starling’s net switching customers.

In the first three months of 2023, it saw just 299 customers switching away from other banks to open a current account with Starling compared to 1,810 in the last three months of 2022.

So the move to pay interest on current account balances may be enough to claw some customers back while incentivising current customers not to switch away.

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