As a raft of banks hack at their current account perks, Tesco Bank pledges to keep interest rate at 3% for two years
Tesco Bank has guaranteed that it won’t cut the interest rate paid to current account customers for the next two years.
The supermarket giant currently pays 3 per cent on balances of up to £3,000 held in its free account, earning a maximum £88 a year.
The announcement comes after a raft of cutbacks on popular accounts paying interest or rewards (see below).
Every little helps: Tesco Bank has pledged to keep its 3 per cent interest for the next two years
The supermarket banking arm is also offering a boosted Clubcard rate for current account holders from April 2017 until April 2019.
Those with the supermarket loyalty card currently earn 1 point per £1 spent in stores, with current account holders earning an extra 1 point per £4 spent in stores and 1 point per £8 elsewhere.
From April account holders will earn 1 point per £1 spent in stores on top of the standard loyalty scheme, meaning a total earning 2 points per £1 spent in stores.
A £1,000 per month including £250 spent in Tesco could be worth up to £70 off your shopping.
Interest and rewards could therefore earn around £158 a year.
The Tesco Bank deal also has the benefit of no extra restrictions or hoops to jump through in order to earn interest it requires no monthly minimum deposit or direct debit requirements.
Good news for savers
Dismal interest rates mean savers currently struggle to find an easy access account paying more than 1 per cent. The top deal in This is Money’s independent best buy tables from RCI Bank pays just 1.1 per cent.
Even those willing to lock their cash away for up to five years will only benefit from rates of up to 2.05 per cent from Atom.
Not only does the Tesco Bank deal outstrip the leading easy-access savings deal by 1.9 per cent its pledge to freeze rates goes against a wave of cuts to popular accounts over recent months.
In October last year Santander reduced the rate paid on in-credit balance on its 123 Account from 3 per cent to 1.5 per cent, shortly after a fee increase from £3 a month to £5.
TSB and Lloyds Bank have also cut the interest on their own accounts. The TSB Classic Plus account now pays 3 per cent on £1,500 down from 5 per cent on up to £2,000 while Club Lloyds customers will now receive just 2 per cent on a £5,000 balance - down from 4 per cent.
This week Halifax customers have also seen their monthly rewards drop from £5 to £3 and the bank has announced a cut to its sign up bonus from £100 to £75.
EDITOR'S FIVE OF THE BEST CURRENT ACCOUNTS
Halifax's Reward account will pay you a £3 monthly bonus and £75 for signing up. You must pay in £750 a month, stay in credit and have two active direct debits.
First Direct regularly tops polls for customer service. Its First Account offers £125 for joining and has a £250 interest-free overdraft beyond that an authorised overdraft costs 15.9% EAR. You must pay in £1,000 per month.
Santander's 123 account pays 1.5% interest on balances up to £20,000 and also gives 1 to 3% cashback on bills. You need to pay a £5 a month fee, pay in £500 a month and have two active direct debits.
Nationwide's FlexDirect pays 5% interest on up to £2,500 and has a fee-free overdraft. Watch out these are both for the first year only and you must pay in £1,000 a month.
M&S; Bank's current account has a £50 gift card for joining, plus you get an extra £5 a month top up for the two years. It has no qualifying criteria.
So is it worth switching to Tesco?
Whether its the right account for you and your potential earnings will depend on your priorities.
Santander offers a better deal if you have more cash to leave in the account, as does Bank of Scotland's Vantage feature, paying 1.5 per cent on up to £20,000 and up to 3 per cent on £5,000 respectively.
If you are after an impressive sign-up bonus or are willing to switch again after a year, you may earn more with Nationwide's FlexDirect deal paying 5 per cent on £2,500 for the first year.
TSB pays even more in the first year with a current £125 switching bonus, up to £60 back on contactless spending and a maximum £45 from 3 per cent rate on £1,500.
Tesco Bank however will stand out particularly for those unlikely to switch accounts again in the near future. Its rate and rewards pledge ensures earnings won't drop in the next two years.
Plus it could be the most lucrative option for Tesco shoppers. The Clubcard scheme is already the most rewarding supermarket scheme, but the new points top-up almost doubles your earning potential in stores.
Account | Perks | Conditions |
---|---|---|
Santander 123 | Santander will pay 1.5 per cent on balances up to £20,000 plus up to 3 per cent cashback on bills | £5 a month fee. You must pay in £500 a month and two active direct debits |
Santander 123 Lite | Up to 3 per cent cashback on your household bills | £1 a month fee, £500 a month and two active direct debits |
First Direct 1st Account | £125 for joining via switch service and £250 interest-free overdraft | Pay in £1,000 a month or maintain a £1,000 balance |
Nationwide FlexDirect | 5 per cent interest on up to £2,500 and fee-free overdraft, both for the first year only | Pay in £1,000 a month |
Halifax Reward | £100 for joining via switch service (before March 1, after that it drops to £75) and a £3 monthly bonus | Pay in £750 a month, stay in credit and two active direct debits. |
Tesco Bank Current Account | 3 per cent on balances up to £3,000 and extra Clubcard points for spending on debit card | No fee or rules |
TSB Classic Plus | £125 to sign up, 3 per cent on up to £1,500 plus 5 per cent cashback on first £100 of contactless spending each month with debit card or Apple Pay | Pay in £500 a month. |
M&S Bank Current Account | £50 gift card for joining via switch service, plus collect an extra £5 a month for the first two years in vouchers. Loyalty points for spending on debit card in store and £100 interest-free overdraft | No fee or rules |
Metro Bank Current Account | Free debit card transactions in Europe and longer opening hours | No fee or rules |
Club Lloyds | Pays 2 per cent on up to £5,000, plus a choice of one lifestyle benefit such as six cinema tickets or magazine subscription | £3 monthly fee or deposit £1,500 a month |
Nationwide FlexAccount | Three months' interest-free overdraft | No fee or rules |
HSBC Advance | £150 cash to switch and £50 extra after first 12 months | Current Account Switch Service and move over two or more direct debits or standing orders to their new account within the first 30 days. Requires £1,750 minimum monthly deposit |
Classic Account with Vantage | 3 per cent on £3,000-£5,000, 2 per cent on £1000-£2,999 and 1.5 per cent on £1-£1,999. | Remain in credit, two active direct debits, and pay in £1,000 a month. |
Co operative Bank with Everyday Rewards | £110 to sign up and up to £5.50 in monthly rewards including 5p (up to £1.50) each time you use your debit card | Current Account Switch Service and maintain 4 direct debits , pay in £800 a month, stay in credit. |
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