TSB Bank is to launch a new current account on 30 March, paying 5% interest to customers who stay in credit.
The Plus account –TSB's first since its split from Lloyds Bank – will pay 5% AER interest to anyone who stays in the black with a balance of up to £2,000 and who registers for online banking and paperless correspondence.
This means a customer with £2,000 in their account would earn £100 in interest a year – a best buy current account at that level of deposit.
Customers must deposit a minimum of £500 a month to get the rate and TSB has said they can open up to two accounts. This means customers can potentially put away £4,000 to earn £200 a year in interest, although they would have to pay £500 a month into both accounts.
TSB will also allow customers to 'try before they buy' in that it won't insist customers transfer all direct debits and standing orders to the new Plus account immediately; indeed, there is currently no timeframe for when direct debits must be ported across.
The high rate of interest is not an introductory offer and nor is there a fee for opening or running the account. Moreover, it is available to new and existing customers.
But interest is charged on overdrafts at 19.94% and there is a monthly £6 charge for using an authorised overdraft (after a 'free' buffer of £10 – considerably lower than the £100 buffer on the new M&S current account, due to be launched this summer).
Simple and rewarding
Jatin Patel, products director at TSB, said: "The account is simple and rewarding, without the usual funny stuff. All we ask is for people to pay in £500 a month and work with us by registering for paperless statements and correspondence, so the money we save can be put straight back into people's pockets as interest."
Personal finance expert Andrew Hagger at Moneycomms.co.uk said the new account is "a good choice if you always keep a credit balance but not one for borrowers or travellers".
He explained: "This account pays 5% credit interest on balances of up to £2,000 and, while there's no introductory switching incentive (£100 seems to be the norm these days), the credit interest feature is not a short-term introductory offer, so if you keep £2,000 in your account at all times you'll earn £80 a year after 20% tax."
He pointed out that while TSB's existing current account has a lower rate, it pays it on bigger balances, so higher net returns are possible. For example, £5,000 at 3% delivers annual interest income of £120 net of 20% tax.
Hagger added that the TSB Plus account ranks second behind the Halifax Reward current account for in-credit interest with an average credit balance of £500. However, it comes out top for balances of £2,000 and fifth best in the rankings if you have a balance of £5,000.
However, he said customers being allowed to open two accounts without being required to transfer direct debits "sets the 'loophole' alarm bells ringing".
"TSB could see an influx of consumers opening two TSB Plus accounts and earning 5% on a combined £4,000 balance, viewing it as an alternative to poor paying instant access savings accounts.
"Perhaps this is TSB's thinking – it knows it will draw in a raft of balances which then gives it a chance to woo these particular account openers with top notch customer service thus encouraging them to put down sticks as long-term current account customers – direct debits and all?"