United Kingdom

TSB to abolish current account interest from December

TSB will be hoping its customers really don't care about the interest paid on their savings after it announced its Classic Plus current account would no longer pay anything at all from December.

The decision from the bank to abolish interest on Classic Plus balances means the rate paid will fall from 5 per cent as recently as June 2019 to absolutely nothing.

The 5 per cent rate was reintroduced by former chief executive Paul Pester at the end of April 2018 as an olive branch to customers after the bank's infamous IT meltdown.

TSB will abolish in-credit interest on its Classic Plus account in December. The account paid 5% interest as recently as last June

But it lasted just 15 months before it was cut to 3 per cent and was cut in half again in mid-February.

The Classic Plus account, which was removed from sale to new customers on Wednesday after the bank launched its new 'Spend and Save' account, will continue to pay interest on balances of up to £1,500 until 2 December, earning customers who hold the maximum amount around £22.50 a year in interest.

A spokesperson for the bank blamed the decision on the 'continued low interest rate environment', which along with the coronavirus pandemic have squeezed the profit margins of Britain's high street banks.

TSB fell to a £65.5million pre-tax loss in the first six months of this year, having reported a £21.1million profit over the same period last year. 

Its net interest margin, the difference between what it earns on loans to what it pays on deposits, fell from 2.76 per cent to 2.49 per cent in the first half of 2020 compared to 2019.

In August it was labelled the joint third-worst bank in Britain, tied with Clydesdale Bank and ahead of only Tesco Bank and Royal Bank of Scotland, with just 51 per cent of customers saying they'd recommend it to their friends and family.

It lost a net 40,799 current account customers between the start of last year and the end of March 2020, according to the latest figures from the Current Account Switch Service.

While TSB's previous decision to cut its rate came before the coronavirus pandemic struck the UK, many banks have since responded by slashing their current account perks. 

Nationwide Building Society, Lloyds Bank and Santander have all made cuts to the interest they pay on current accounts.

And TSB has followed Tesco Bank's lead, which also blamed a record low Bank of England base rate of 0.1 per cent when it announced two months ago that its current account would no longer pay any interest come September.

The account previously paid 3 per cent interest on up to £3,000 until June 2019.

Andrew Hagger, the founder of personal finance site Moneycomms, said: 'The days of credit interest on your bank account are pretty much finished.

'At one time it was a key marketing ploy and differentiator between providers but gradually one by one they've all quietly dipped out of this market.'

He added: 'I think the likes of TSB realise that there are limited options elsewhere for credit interest and even though they are wiping out the rate completely they probably don't anticipate losing too many customers to rivals as a result.

'The low rate environment doesn't help matters either.'

Do any current accounts pay interest anymore? 

While banks continue to cut back on their perks, provided savers adjust their expectations they can still earn in-credit interest elsewhere.

Most notably, Nationwide FlexDirect pays 2 per cent interest on balances of up to £1,500, however that is only for the first 12 months. 

That would earn a customer a maximum of around £30 a year.

Customers could earn the same amount in cashback through TSB's new Spend and Save account, which pays £5 monthly cashback for the first six months after account opening provided customers make 30 debit card payments in a calendar month. But the payments dry up after that.

Lloyds Bank's Club Lloyds account, which is currently offering people £100 to switch to it, pays a blended rate of around 1.2 per cent on balances of up to £5,000. However this rate will fall from October to around 0.8 per cent, cutting the amount earned on a full balance to around £39 a year.

And Santander's 123 account, although cut twice in the four months, still pays interest on the largest possible balance. It pays 0.6 per cent interest on up to £20,000, or a maximum of £120 a year on the full balance, along with cashback of up to 3 per cent on bills.

However, the account comes with a £60 annual fee which eats into the interest earned, and it is a far cry from the days when Santander paid 3 per cent interest on large balances.

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

RBS's Reward Bank Account pays up to £5 a month you pay out two direct debits a month of £2 each and log into mobile banking. The account comes with a £2 monthly fee and you can get a £100 switching incentive if you pay in £1,500 by 30 December.

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

TSB's Classic Plus Account pays 1.5 per cent interest on balances of up to £1,500. You must pay out two direct debits, register for internet banking and go paperless.

Nationwide

Nationwide's FlexDirect account comes with 2% interest on up to £1,500 - 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

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