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.