High street battles for current account business

15th September 2015

High street battles for current account business

Santander bucks the trend but savers can still reap rewards!

Fresh battles in the current account market have sparked further competition and more incentives that benefit both banking and savings customers. However, it’s not all good news. Santander has gone against the grain announcing plans to increase the monthly fee on its popular 123 current account effective from January 2016.

These pseudo savings accounts have been a saviour for savers amidst the backdrop of plummeting and record low interest rates on savings accounts. Encouragingly, recent weeks have seen a resurge in best buy rates on traditional savings accounts, but it would take several base rate rises and further increased competition before savings rates reach anywhere near those currently on offer for current accounts.

The good news is some banks are upping their game. TSB has added cashback on the first £100 of contactless payments per month, to its best buy Classic Plus current account. The account already pays a market leading 5% AER along with its linked regular savings account, also paying 5% AER. With the 5% cash back feature, the account has been dubbed 555. All other terms and conditions still apply.

Halifax has also improved its offering with a £125 golden hello (up from £100). The account isn’t necessarily the best option for savers as it doesn’t offer an interest rate but rather £5 per month regardless of the balance, subject to terms and conditions. That said, with the increased cash incentive for smaller balances it could offer better value than some higher paying equivalents.

Recently First Direct also increased its cash incentive which Halifax appears to have directly reacted to, but given that First Direct pays no interest this remains an account for banking not saving.

Other great accounts that work well for savers include the Clydesdale Bank Current Account Direct which pays 2% AER on balances up to £3,000.  With the cash incentive of £150 to switch your current account, which isn’t new but still competitive, this adds up to a total of £210 pa, an equivalent to a market beating 7% AER.

If you don’t want to switch your account, you can still get 5% AER from Nationwide (as well as TSB mentioned above) in-credit balances of up to £2,500.

It’s important to remember to look at all aspects of a current account, not just the interest rate, and ensure that account works for you. Fall foul of the rules and the account could cost more than it rewards.

The bad news is that the best account for savers is to be tampered with. It’s been announced that Santander plans to increase the monthly fee on its popular 123 current account from £2 to £5, effective from January 2016. After years of pulling in new customers, 3.6 million customers to be exact, it’s now increasing the annual fee from £24 to £60. However, the account still offers good value, including 3% AER in-credit interest and cash back on some purchases and bills. If you’ve less than £3,000 you’d undoubtedly be better off in higher paying equivalents such as TSB mentioned above and/or Nationwide or a mix of the two in order to invest the full £3,000 – of course all subject to terms and conditions.

The 123 was innovative and can still offer value if used correctly with the cashback benefits. In fact, even with the increased fee, the cashback can negate or at least reduce the effects of the fee, so could still offer a competitive home for all savers.

What's on offer for savers?

Clydesdale Bank offers 2% AER + £150 cash incentive to switch accounts. The interest and added incentive could be £210 which is an equivalent to a market beating 7% AER.

TSB pays 5% AER credit interest on balances up to £2,000. Additionally it offers 5% on its linked regular savings account (exclusive to Classic Plus current account customers) along with its latest cashback feature mentioned above. Funding requirements apply but you don’t need to switch your main current account to apply.

Nationwide pays 5% AER credit interest on balances up to £2,500. Funding requirements apply but you don’t need to switch your main current account to apply.

Lloyds Bank is offering 4% AER credit interest on balances between £4,000 and £5,000. Funding requirements apply but you don’t need to switch your main current account to apply.

Santander pays 3% AER credit interest on balances between £3,000 and £20,000. The account currently comes with a £2 monthly fee, increasing to £5 from January 2016, however with the right direct debits this can be reduced or negated. Choose your direct debits wisely!

Bank of Scotland pays 3% AER credit interest on balances between £3,000 and £5,000. Funding requirements apply but you don’t need to switch your main current account to apply.

Tesco has now removed its £5 monthly charge as well as paying 3% AER in-credit interest on balances up to £3,000. Funding requirements apply but you don’t need to switch your main current account to apply.

Halifax doesn’t pay an interest rate but pays £5 per month for the first year subject to terms and conditions. It also comes with a cash incentive of £125, when you switch your main current account.

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If you have more than £100,000 and would like to double the interest you receive, without the hassle, find out how we can help by calling 0800 321 3581.

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