Best bank accounts: Club Lloyds to cut interest rate to 0.8%


Club Lloyds customers to earn less interest as Britain’s biggest bank is the latest to cut current account perks

  • Account currently pays a blended interest rate of around 1.2% on up to £5,000
  • This will be cut back to 0.8% from October
  • Tesco Bank and Santander have announced cuts to their bank account perks as record low interest rates squeeze banks’ profits

Customers of Britain’s biggest bank will earn less interest from October, with Lloyds Bank slashing how much Club Lloyds and Bank of Scotland Vantage customers earn by around £21 a year. 

Both accounts currently pay interest on up to £5,000, paying 1 per cent on balances between £1 and £3,999.99 and 2 per cent on an additional £1,000, or roughly £60 a year in interest, for a blended rate of around 1.2 per cent.

But from October, Lloyds will cut that rate to around 0.8 per cent, slashing the interest rate on smaller balances from 1 per cent to 0.6 per cent and from 2 per cent to 1.5 per cent on the extra £1,000.

Lloyds has followed Tesco Bank and Santander in announcing cuts to its bank account perks

Customers can earn around £39 a year in interest if they keep the maximum £5,000 in their account after the changes come into effect.

Account holders earn interest if they pay out two direct debits every month, while the account usually comes with a £3 monthly fee if £1,500 isn’t paid in each month.

Lloyds has waived this fee between June and August, but those who don’t pay in that much could be hit with a double whammy of an account fee in September followed by an interest rate cut a month later.

Lloyds said in a statement: ‘Our Club Lloyds account continues to recognise loyalty through its range of benefits; including the recent introduction of free movie downloads throughout the year and exclusive access to cashback offers on mortgages and enhanced savings rates.’

However, those enhanced rates pay just 0.05 per cent on an easy-access savings account, more than a percentage point lower than the best available rate, and only if more than £25,000 is saved, and 1.5 per cent a year on a regular saver which allows account holders to stash away up to £400 a year.

The best regular saver on the market on offer to all is from Coventry Building Society, and pays 1.85 per cent on savings of up to £500 a month.

Some, including HSBC, First Direct offer 2.75 per cent, but only to existing current account customers.  

The bank added: ‘In line with the market, we have made some changes to the rates of credit interest and whilst we understand customers may be disappointed, we are confident the account still offers exceptional value for money.

‘Changes to the rate of credit interest have also been made to Bank of Scotland Vantage, which continues to give our customers credit interest as a free add-on.’

The banks which have slashed rewards and interest in response to coronavirus
Bank  Old interest rate  New interest rate  Date of change 
Santander 123 account 1.5% on up to £20,000 0.6%  3 August 
Tesco Bank  1% on up to £3,000  0%  22 September 
Nationwide FlexDirect 5% on up to £2,500 for 12 months  2% on up to £1,500 for 12 months  1 May 
Starling Bank  0.5%/0.25%  0.05%  1 May 
Club Lloyds  1% on £1 – £3,999.99
2% on £4,000 – £5,000 
0.6% on £1 – £3,999.99
1.5% on £4,000 – £5,000 
1 October 

Lloyds has become the latest bank in recent weeks to cut back the perks it offers to current account customers.

On Wednesday Santander doubled the monthly fee on its 123 Lite account to £2 and adjusted the cashback so customers earned less from TV and broadband bills and more from water bills, while earlier this month Tesco Bank said it would no longer pay customers any interest at all on their balances from September.

Santander’s £5 a month full 123 account will pay just 0.6 per cent interest on balances from the start of next month, down from 1.5 per cent earlier this year.

Banks were already paring back in-credit interest and cashback offers even before the coronavirus pandemic upended the UK, as a decade of low interest rates helped squeeze the margins of high street lenders.

This trend has only become more apparent over the last few months, with the Bank of England base rate now at an all-time low of 0.1 per cent and forecast to stay that way for the foreseeable future.

Nationwide and Starling Bank are among the other current account providers which have reduced the interest they pay to customers.

Lloyds has been one of the current account switching winners in recent times. 

It was the third most switched to bank for those moving account with the official service, behind Monzo and Nationwide Building Society, thanks in part to a £125 switch bonus it brought in last year.

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.

Santander

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.

NatWest

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.

Santander

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

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.

Barclays