Tesco launches first current account
The UK's largest supermarket has today launched its first current account, as the battle for bank custom heats up.
Tesco Bank's current account will give you 3% interest on balances up to £3,000. While that will be an attractive proposition for many customers, it isn't the market leader for in-credit interest.
TSB is paying 5% interest on balances up to £2,000, as does Nationwide's Flex Direct Account on balances up to £2,500 for the first 12 months.
However, the account does give customers the chance to earn Clubcard points wherever they shop.
The bank, one of a number of new players looking to challenge the established high street providers, said its "simple and transparent" account would reward people for their loyalty.
Tesco's offering will see customers earn one Clubcard point for every £4 they spend instore on their debit card and one point for every £8 they spend elsewhere.
Shoppers will be able to make deposits and withdrawals in more than 300 stores across the country open until 8pm.
The account will be free to people paying in more than £750 a month, otherwise a monthly fee of £5 applies.
The account will not impose a daily or monthly overdraft fee but you'll be charged a 18.9% EAR for as long as you dip into the red. For example, if you used an arranged overdraft limit of £1,200, you would pay 62p in interest each day.
There is no interest-fee buffer for those who slip into the red at the end of the month, nor is there a cash incentive for switching.
Andrew Hagger, of Moneycomms.co.uk, said the account will prove an attractive proposition for customers unhappy with their current banks.
He added: "It's also good to see that Tesco hasn't gone down the route of charging daily fees for overdrafts as this can prove an expensive style of tariff, particularly for those only in the red by two or three hundred pounds.
"With seven-day switching well and truly bedded in, there's no longer an excuse to stick with your bank if it doesn't deliver and that's something that Tesco Bank and fellow challengers are looking to exploit."
The account has also been welcomed by Which? executive director Richard Lloyd, who said: "It's good to see more choice on the high street, where so few big banks have dominated for so long. Serious competition from new players offering more transparent and consumer-friendly services will help shake up banking for the better.
"This new Tesco account is likely to appeal to the many customers fed up with shoddy service elsewhere, with decent interest for those in credit, competitive authorised overdraft charges, and a reward scheme that will be helpful for Tesco shoppers."
The arrival of the Tesco account follows that of M&S Bank, which launched its first free current account last month, and TSB, which offered customers a new account in April.
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.
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
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.