Tesco Bank axes current fee after Santander's hike

15 September 2015
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.

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