🔔 Tesco Bank slashes the rate on its interest-paying current account

Tesco Bank has cut the rate on its popular current account for new customers to 1% AER, from the previous competitive rate of 3% AER.

The bank has also announced that it will reduce the rate for existing current account customers - but not until 14 June 2019.

In April 2017, Tesco Bank made a commitment to maintain the rate at 3% AER for two years, although with this guarantee coming to an end next month, it could be argued that the provider has wasted no time in adjusting the rate.

As rates on savings accounts began to fall in 2012, following the introduction of the Funding for Lending Scheme, interest-paying current accounts became very popular as they offered beleaguered savers a way to squeeze a little more interest out of their cash.

Rates soared to as high as 5% AER, although these high returns were only available on smaller maximum amounts - far lower than most savings accounts.

Nationwide Building Society, for example, is still offering 5% AER on balances of up to £2,500 – although, as with most of the interest-paying current accounts, you must pay a minimum amount (£1,000) into the account per month. In addition, the rate includes a bonus of 4% for 12 months, so the rate on this account will drop to 1% at this time.

TSB is also paying 4.89% gross/5% AER, this time on balances of up to £1,500 – but there is no introductory bonus included in this rate. An amount of £500 must be paid in each month and you must register for internet banking, paperless statements and paperless correspondence in order to qualify for the rate.

Other T&Cs on these accounts may include the requirement to set up a minimum number of direct debits and there may also be fees in some cases - so it’s important to read all the small print to make sure that you don’t fall foul of the rules.

Another of the benefits of an interest-paying current account is the access that this may offer to some of the top-paying regular savings accounts. As well as paying 5% on the FlexDirect account, Nationwide flex current account holders can also open a Flex Regular Online Saver, which pays 5% gross/AER on deposits of up to £250 per month, fixed for 12 months.

So, although interest-paying current accounts are becoming a little less attractive as a result of rate cuts, they may still be worth a look to help you squeeze out that little bit of extra interest.

After all, if some of your money is sat in your current account anyway, you may as well get some interest on it while it is there.

Take a look at our interest-paying current account best buy table for more information or call one of our savings experts on 0800 011 9705.

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