Tesco Bank axes current fee after Santander's hike
Tesco Bank is to axe its £5 monthly current account fee for new and existing customers from Thursday 17 September.
The bank also dropped the £750 monthly deposit as a condition of opening the account.
The changes follow Santander's announcement that it will almost treble the fee on its popular 123 current account on 11 January 2016 from £2 a month to £5.
Tesco's fee removal will see customers earn 3% AER interest on credit balances up to £3,000. They will also earn Clubcard points whenever they use their debit card at a rate of one Clubcard point per £4 spent at Tesco or one point for every £8 spent elsewhere.
There is a flat overdraft fee of 18.9% variable EAR but there are no monthly or daily fees.
David McCreadie, managing director of banking at Tesco Bank, said: "We always listen to customers so we can improve our products and services. By removing the monthly fee, we believe we are offering customers one of the best value current accounts in the market."
Some 3.6 million Santander customers will be hit by fee increases on the bank's flagship 123 range.
Kevin Mountford, head of banking at MoneySuperMarket, said: “For savers, our calculations show that those with £4,500 or more sitting in their account will earn £135 in interest over the course of the year. Once the account fees are taken away, this still leaves £75 – the equivalent of 1.66% interest – which beats the amount you could get in a regular savings account. However, anyone with a balance smaller than £4,500 would be better moving their money into the highest paying savings account – ICICI Bank pays 1.65% on its HiSave SuperSaver Savings Account, so you would get more for your money this way.”
As well as the fee on the 123 current account rising to £5 a month from 11 January, the credit card fee will be hiked by 50% to £3 a month.
The cashback offers on the current account and credit card will not change for existing customers. However, credit card cashback will be capped for new customers.
The 123 credit card pays 1% cashback on supermarket shopping, 2% on spending in department stores at 3% on transport. From January, each element will be capped at £3 a month.
Santander increased its current account users by 47% in 2014, thanks mainly to 123. It is thought that Tesco will not be the only rival to use Santander's fee hike as a way of increasing their own market share.
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.
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.
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.
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.