Lloyds and TSB go to war with new current accounts
Not to be outdone by TSB, Lloyds Bank has launched a souped-up current account.
The Club Lloyds account offers 4% tiered credit interest on balances between £4,000 and £5,000 maintained for 12 months, which could earn customers up to £196 net of tax a year.
The TSB Plus account, which launched on Sunday 30 March, pays 5% but only on balances up to £2,000.
Returning to the Lloyds Club account, balances between £2,000 and £3,999.99 will earn 2%, though this rate falls to just 1% on balances below £2,000.
The account, which can be opened and managed online, in branch and over the phone, will also give customers access to a mortgage rate reduction of 0.2% and a monthly saver account that pays 4% interest on savings up to £400 each month – paid monthly or annually.
Customers must pay in £1,500 and set up at least two direct debits into the account each month but anyone wanting to use the Club account but not as their main current account can access it for a £5 monthly fee.
The account comes with a £100 interest- and fee-free authorised overdraft (unlike the £10 buffer on offer with the TSB Plus account). Customers who exceed the limit will have until 3.30pm the next day to escape unauthorised overdraft fees kicking in.
The interest charged on authorised overdrafts greater than £100 is 19.94% AER and a £6 monthly usage fee will apply. But Platinum packaged account customers will pay a reduced rate of 17.28%; while Club Premier customers will pay 15.43%.
Unauthorised overdrafts will set you back £5 a day for transactions of between £10 and £25, and £10 a day for transactions of more than £25 – these fees are capped at a maximum of eight days.
Other perks of the account include up to 15% cashback on everyday spending and the choice of one 'lifestyle option' such as six free cinema tickets a year or an annual Gourmet Society membership.
Philip Robinson, director of current accounts at Lloyds Bank, said: "We want to reward loyalty by offering a collective range of market leading rates across our products."
Andrew Hagger of money website Moneycomms.co.uk, said: "Overall the credit interest on offer is pretty decent but for existing Lloyds Vantage customers it's less attractive on smaller balances, where they currently pocket 1.5% up to £1,000 and 2% between £1,000 and £3,000 – so these customers will be less than impressed with the Club makeover."
He pointed out that while those who are able to keep a balance of £5,000 in the Club account for 12 months will earn interest of £160 a year, "for people with bigger credit balances, the 123 account from Santander paying 3% from £3,000 to £20,000 remains the stand out deal".
As for the 0.2% discount on new mortgage deals, he added: "It's a decent cut but you'd still be wise to get an independent mortgage broker to check that the discounted deal represents a good rate when compared against the whole market best-buy deals."
While he's "pleased to see the introduction of a £100 interest and fee-free buffer" he said that he was "disappointed at the high overdraft interest rate of 19.94% AER and £6 monthly usage fee".
"If you're not somebody that keeps much of a credit balance and are regularly overdrawn in excess of £100 there are cheaper bank account options to choose from."
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
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.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.