Lloyds and TSB to slash interest rates on top current accounts in 2017
Savers with Bank of Scotland, Halifax, Lloyds, and TSB will be hit with rate cuts from 2017 as the high interest paying current account providers become the latest to slash rates on what was the last refuge for people looking for a decent return on their savings.
Here’s what’s happening:
- Bank of Scotland and Halifax: From February, the monthly in-credit bonus on Reward and Ultimate Reward accounts will be slashed by 40% from £5 per month to £3 per month.
- Lloyds Bank: In January, the headline interest rate will be cut from 4% to 2%, while the rate on Enhanced Current Accounts, which have been closed to new customers for some time, will fall from 0.75% to 0.25%. This interest is only paid on balances up to £5,000.
- TSB: In January, the headline grabbing 5% interest rate will fall to just 3%. Moreover, TSB’s headline rate will only be paid on the first £1,500 in an account, down from the current £2,000. TSB’s 5% cashback on contactless spending, worth up to £5 per month, is unaffected.
In August, Santander announced it will pay a flat 1.5% on savers’ 123 current accounts, instead of a maximum 3% on higher balances.
What’s driving these rate cuts?
Record low interest rates are putting pressure on banks’ bottom lines. As well as slashing the rates on its current accounts, Lloyds Banking Group also announced plans to make 1,230 employees redundant.
The partially state owned bank is one of the worst-hit by the ongoing PPI scandal. According to its most recent accounts, PPI claims will cost Lloyds Banking Group £16 billion.
Last week the government announced it had scrapped plans to sell its remaining stake in Lloyds Banking Group to the public at a discount, and will instead sell off its remaining stake directly to the market.
Halifax, Lloyds, and Bank of Scotland are all owned by Lloyds Banking Group, which also owned TSB until it was sold off last July. A spokesperson for TSB told Moneywise the timing of its rate cuts are “just a coincidence”.
The banks’ responses
A spokesperson for Lloyds Banking Group says: “These changes follow a review of our full current account range, taking into consideration changing market conditions. We believe these changes ensure that the products remain both attractive to customers and competitive in the market.
“We will be writing to customers individually to explain the details, providing at least two months’ written notice before any changes take effect.”
A spokesperson for TSB says: “We will be writing to our affected customers, giving them two months’ notice during which time they will continue to benefit from the current rates and applicable balances. We pride ourselves on giving our customers the best service and support possible and our partners are on hand to help guide customers through these changes.”
While these rate cuts are a further frustration for savers, you shouldn’t rush to close your account unless you know you can do better elsewhere.
The reality is most of these rates are still far higher than you’ll get from a traditional savings account, and these banks seem to be acting safely in that knowledge.
In any case, the changes won’t kick in for a couple months, so leave your money where it is now and compare rates closer to the time.
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
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.
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.