Will the base rate rise boost your bank account returns?

Published by Adam Williams on 13 November 2017.
Last updated on 13 November 2017

Analysis: Will the base rate rise boost your bank account returns?

A year ago, in the aftermath of the Bank of England’s decision to cut the base rate to 0.25%, a string of major banks announced they were reducing interest rates on their flagship current accounts.

One year on, with the base rate having returned to its previous level of 0.5%, are current account customers in line for a savings boost?

Bank of Scotland, Halifax, Lloyds Bank, Santander and TSB were the five major providers that slashed their interest rates and rewards following the August 2016 base rate cut. Santander made the first move, halving the top rate of interest on its 123 Current Account to 1.5% in November 2016.

Lloyds Bank and TSB followed suit in January 2017, the Club Lloyds account saw its top rate of interest cut from 4% to 2%, while TSB reduced both the interest rate – from 5% to 3% - and restricted this to the first £1,500 of funds in its Classic Plus account - down from £2,000.   

Although not an interest-paying account, Halifax Reward account holders saw their monthly reward payment drop from £5 to £3 in February. Bank of Scotland then slashed the headline rate of interest on its Vantage account from 3% to 2% in June.

No plans to change

Moneywise contacted each of these five banks to see if they planned to pass on the base rate increase to their customers, but was told by each that they had no plans to do so.

They all said that despite rates falling when the base rate was lowered last year, their products were not formally linked to the base rate and there were no plans to give better returns to their customers.

TSB told Moneywise it believes its account remains highly competitive in today’s marketplace, while a spokesperson for Lloyds Banking Group, which includes Bank of Scotland, Halifax and Lloyds Bank, said: “The interest rates on our current accounts are not linked to the base rate, this is just one consideration in our overall decision.”

Santander has already announced that its customers with variable rate mortgages will see their interest rates increased by 0.25%, while variable savings rates will return to the levels they were last summer before the base rate cut. However, it says the pricing of its Santander 123 Current Account will not be altered.

 

History of current account rate cuts
Account Current interest rate Previous interest rate Date of rate change
Bank of Scotland Vantage 2% on balances up to £5,000 3% on balances of £3,000 and £5,000, 2% on £1,000 to £3,000, 1.5% under £1,000 11 June 2017
Lloyds Bank Club Lloyds 2% on balances up to £5,000 4% on balances of £4,000 to £5,000, 2% on £2,000 to £4,000, 1% under £2,000 8 January 2017
Santander 123 Current Account 1.5% on balances up to £20,000 3% on balances of £3,000 to £20,000, 2% on £2,000 to £2,999, 1% on £1,000 to £1,999 1 November 2016
TSB Classic Plus 3% on balances up to £1,500 5% on balances up to £2,000 4 January 2017
Account Monthly reward payment Previous reward payment Date of rate change
Halifax Reward £3 per month £5 per month 1 February 2017
Source: Moneywise, November 2017

‘Loyalty very rarely pays’

With rates on traditional savings accounts nudging upwards since the base rate rise, will this signal the end of consumers using current accounts to save?

Anna Bowes, director of advice site Savings Champion, says current account customers could be left feeling short-changed by their providers.

“Although not strictly savings accounts, high interest current accounts have very much become part of the savings landscape and have been the saver’s saviour over the last few years following the dramatic fall in the rates of interest being offered on standard savings accounts,” she argues.

“As a result, many savers will be bitterly disappointed that the interest rates on some of the high interest current accounts are not going to be increased following the Bank of England base rate rise, especially since they have not been immune to cuts over the years.”

Ms Bowes says customers should assess their accounts and see if they can switch to a better deal elsewhere.

“As best buy standard savings accounts begin to increase and overtake the rates of interest being offered by current accounts, savers should abandon the latter in favour of the more straightforward savings accounts, including Cash Isas where appropriate.

“Other features, such as cashback, can still make them worthwhile, but like any account, it’s important to regularly review and switch when you are no longer getting the best deal. Loyalty very rarely pays.”

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