Tesco considers current account offering
The Royal Bank of Scotland is to jack-in its 50% stake in Tesco Personal Finance, as the supermarket unveils plans to expand its savings range and potentially offer current accounts for the
The deal will see Tesco buy-out RBS for £950 million, leaving the bank £500 million in profit after costs. The two firms established the insurance, credit card, mortgage and savings provider back in 1997 as a joint venture, and have since them accumulated 5.5 million customers and 25 different products.
Sir Terry Leahy, chief executive of Tesco, says the supermarket plans to expand the brand to make the most of current turbulent conditions: “Services are bigger and faster-growing markets than food. As consumers look to make every pound work harder, it is a good time for Tesco to expand its presence.
Tesco Personal Finance reported profits of £206 million before tax this year, but the firm believes it could increase its revenue to £1 billion a year. To do this, it is looking to expand its range of savings products and potentially even launch into the already competitive current account market.
Despite waving goodbye to the venture, RBS will continue to offer commercial services to the brand after the deal completes.
Sir Fred Goodwin, group chief executive of RBS, says: "At this stage of its maturity it is appropriate for Tesco Personal Finance to move to single ownership for the next stage of its growth and we wish it well with its future plans."
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.