🔔 Tesco Bank withdraws from the current account market – should savers be concerned?

Supermarket Banks have been around for a long time – they were arguably some of our earliest challenger banks as they had the double whammy of offering some competitive rates to entice new customers, while also having brand names that people instantly recognise.

However, even though they are well known names as supermarkets, it appears that they are not able to compete with the big banks in some areas of banking services, as illustrated by Tesco Bank announcing that it is withdrawing from the Current Account market. The bank will be closing all of its 213,000 current accounts on 30th November 2021 – however its savings accounts will continue, unaffected.

Tesco Bank’s Chief Executive Gerry Mallon stated that very few of the Tesco Current Account customers were actually using their account for their primary banking needs – but were instead using them as a pseudo savings account and he suggested “Customers who have been using our Current Account as a savings pot may be better suited to one of our tailored savings products.”

Interestingly, while Tesco was announcing its withdrawal from the current account market, it launched the current issue of its Internet Saver paying a competitive 0.50% AER, which backs Mallon’s statement and should reassure Tesco Bank savings customers that it has no current plans to close this part of the bank.

There was a similar announcement from M&S Bank earlier this year, which will be closing all of its current accounts on 31st August this year, while keeping its savings accounts intact.

And in 2019, both Tesco Bank and Sainsbury’s bank pulled out of the mortgage market.

Although their ambitions appear to have changed over the years, the banks all still provide savings accounts, although with the exception of the Tesco Internet Saver, the rates are no longer very competitive.

For example, the best easy access accounts currently available are with Cynergy Bank and Skipton Building Society – and these are both paying 0.60% AER. While, as mentioned above, Tesco is currently offering 0.50% AER on its Internet Saver, M&S bank is offering just 0.01% and Sainsbury’s doesn’t currently have an easy access account on sale.

All three supermarket banks are offering easy access cash ISAs and once again only Tesco is currently offering a competitive option. The best rate on the market is 0.54% AER, again with Cynergy Bank, while Tesco is paying 0.46% AER, Sainsbury’s is offering 0.30% and M&S Bank is paying just 0.10% AER.

Over 12 months, even Tesco Bank is falling well below competitive levels. Its 1-year bond is paying just 0.60% AER whereas the best 12-month fixed term account with Zopa is paying 1.12% AER. Sainsbury’s Bank is offering just 0.35% and M&S Bank 0.15% - even less than a best buy easy access account.

So, although you might recognise the names, you may be better serviced elsewhere.

Keep an eye on our Best Buy tables for all the up to date information on the best rates available