Checkout time for Tesco Bank customers? Popular current account now pays ZERO interest just a year after it slashed rate from 3% to 1%
- The bank currently pays 1% a year on balances of up to £3,000 – £30 a year
- It already cut the rate once last June from 3%
- It is the latest bank to cut the perks paid to customers as lenders slash offers on the back of a record low base rate
Tesco Bank current account customers will no longer earn interest on their money from September as it becomes the latest to slash perks.
Holders currently earn 1 per cent on balances of up to £3,000 provided they pay in £750 a month and pay out two direct debits.
The changes will be made on 22 September and it is the second time in 15 months the supermarket bank has cut the offer, after it delivered an interest rate cut worth as much as £60 a year last June.
Tesco Bank will axe the interest it pays to customers from September. It currently pays 1% on balances of up to £3,000. It follows other banks which have slashed perks recently
On balance, it lost more than 10,000 current account customers between April and September 2019 after the cut from 3 per cent to 1 per cent was announced in March, according to official switch service data.
The bank, which also sold off its mortgage book last year after years of trying to compete with the UK’s biggest banks, blamed a record low Bank of England base rate of 0.1 per cent for the change.
A customer can currently earn £30 a year in interest from the account.
Although this is down from the £90 they previously would have earned on the maximum £3,000 balance, 1 per cent interest is not a bad rate of return considering average easy-access savings rates were at record lows of just 0.24 per cent at the end of June.
The change only affects existing customers, as the bank has closed its current account to new applicants.
Current account interest cuts
It marks another blow for savers looking for a bank account to pay them a higher rate of interest, with a raft of banks slashing the interest they offer customers over the last few months.
Santander’s £5 a month 123 current account will pay just 0.6 per cent interest on balances of up to £20,000 from 3 August, having previously cut the rate from 1.5 per cent to 1 per cent in May.
TSB wielded the knife for the second time in 10 months, cutting the rate on its Classic Plus account from 5 per cent to 1.5 per cent between last July and this May.
Smartphone bank Starling also cut the in-credit interest offered to customers in the aftermath of the Bank of England base rate cut.
Queuing for the exit? Tesco Bank lost a net 10,000 current account customers between April and September 2019 after it announced it would cut in-credit interest from 3% to 1%
And Nationwide cut the rate on its FlexDirect current account, the last 5 per cent savings deal in Britain, to 2 per cent at the end of April.
It pays this rate for the first 12 months the account is held on balances of up to £1,500, twice the rate previously paid by Tesco Bank on half the maximum balance.
Lloyds Bank’s Club Lloyds account pays a blended interest rate of around 1.2 per cent on balances of up to £5,000 if customers pay out two monthly direct debits, but they must pay in £1,500 a month or be charged a £3 monthly fee.
Record low interest rates make it expensive for banks to offer customers decent perks like in-credit interest on anything other than small balances.
At the same time, bank account switching offers have dried up since March due to lenders focusing on the needs of existing customers amid the coronavirus pandemic, and suffering a loss of income from those putting mortgage or debt repayments on hold.
THIS IS MONEY’S FIVE OF THE BEST CURRENT ACCOUNTS
Santander’s 123 Lite Account will pay up to 3% cashback on household bills. There is a £1 monthly fee and you must log in to mobile or online banking regularly, deposit £500 per month and hold two direct debits to qualify.
NatWest’s Reward Silver Account offers a £175 switching incentive to new and existing customers as well as insurance cover for European travel. Customers can also earn rewards which can be redeemed as cash or gift cards.
Club Lloyds’s Current Account offers benefits such as cinema tickets, magazine subscriptions and dining cards to current account holders. There is no cost if you pay £1,500 each month, otherwise a £3 fee applies. Must hold two direct debits to earn monthly credit interest.
HSBC’s Advance Account offers £175 cash if you switch to it. The account comes with a £1,000 starting overdraft and 2.75% regular saver account. There is no monthly fee, however you must deposit £1,750 per month into the account.
Nationwide’s FlexDirect account comes with 5% interest on up to £2,500 – the highest interest rate on any current account – if you pay in at least £1,000 each month, plus a fee-free overdraft. Both perks last for a year.
