Lloyds TSB launches 5% current account

Lloyds TSB has launched a new fee-free current account paying 5% credit interest on balances as high as £7,000.

Although experts say the account offers a competitive interest rate compared to other fee-free deals, its specific features mean it is not for everyone.

The majority of current accounts offer different credit interest rates depending on the balance and the amount of money paid in each month, with £2,500 normally the cut off point for the top interest rate.

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However, Lloyds TSB's new account, called Vantage, continues to reward customers with balances over this amount. Its tiered structure means balances under £1,000 receive an AER of 0.1%, while accounts with between £1,000 and £3,000 receive 2%, rising to 3% for those with between £3,000 and £5,000, and 5% for those with between £5,000 and £7,000.

Research conducted by Lloyds TSB found that the industry average gross AER on current account balances of £5,000 is just 0.97%, and for a balance of £7,000 this falls to 0.84%.

With the majority of current accounts paying a measly 0.10% on credit interest, Catherine McGrath, director of current accounts at Lloyds TSB believes the Vantage account will prove popular.

"Up until now, banks have failed to reward people with balances over £2,500, leaving those with bigger balances out in the cold," she says. "With many banks slashing their interest rates or not giving customers any interest at all unless they pay a fee, we are confident that this account will prove popular.”

However, as Andrew Hagger, from Moneynet points out, the Vantage account will not be the best current account many Lloyds TSB customers. For example, the lower tiers mean that for people with little money in their account, the rewards are pretty low.

Hagger says: "“Balances of less than £1,000 still pay a derisory 0.1% AER, and for £1,000 to £2999 in your current account, even then you receive a mere 2% AER."

In addition, the number of people that chose to keep more than £5,000 in their current account is likely to be quite small, especially when you consider that interest rates on saving accounts tend to be more generous.



Sean Gardner, founder of comparison site MoneyExpert.com, says people who chose to keep substantial amounts in their current accounts should consider Lloyds TSB's new offering.

But he adds: "[The] rates aren't exactly exceptional if you have under £5,000 sitting in your account. Any one of the 179 instant access accounts that pay over 5% must be worth considering if you're in the market for a high-interest account with easy access to cash."

Hagger urges all customers wanting to earn more than 0.10% on credit balances to always look beyond the headline rates on offer. “Don’t be fooled by headline rates, dig into the detail to check that you’re still getting the best rate available for your money.”

How Vantage stacks up:

Lloyds TSB Vantage
AER: 0.1% to £999, 2% £1,000 - £2,999, 3% £3,000 - £4,999, 5% £5,000 - £7,000
Funding required: £1,000 per month
Interest on £1,000: £20
Interest on £2,500: £50
Interest on £5,000: £250

Alliance & Leicester Premier Direct
AER: 8.5% to £2,500, 4% thereafter
Funding required: £500 per month
Interest on £1,000: £85
Interest on £2,500: £212.50
Interest on £5,000: £250

Halifax High Interest Current Account
AER: 5.12% to £2,500
Funding required: £1,000 per month
Interest on £1,000: £51.20
Interest on £2,500: £128
Interest on £5,000: £130.50

Abbey current account (credit option)
AER: 8% to £2,500, 2.5% thereafter
Funding required: £1,000 per month
Interest on £1,000: £80
Interest on £2,500: £200
Interest on £5,000: £280

Coventry Building Society First Account
AER: 5.6% to £250,000
Funding required: £1,000 per month
Interest on £1,000: £56
Interest on £2,500: £140
Interest on £5,000: £280


Do you work out what balance transfer fee you will pay before switching credit cards?

Yes: Of course. Fees can be significant and I don't want any nasty surprises.
43% (343 votes)
No: I only ever take out a fee-free deal.
17% (138 votes)
Yes: It's the only way to work out the true cost of the credit card facility.
25% (200 votes)
No: I assumed a 0% balance transfer deal meant there were no fees.
14% (109 votes)
Total votes: 790