TSB customers will see the interest paid on the Classic Plus Current Account cut from 3% to 1.5%
TSB has cut the rate on its Classic Plus Current Account for the second time in a year.
The bank is cutting the interest rate on its 3% Classic Plus Current Account to 1.5% from 2 May.
It is the second cut to the account in a year after the bank reduced the rate from 5% to 3% last July.
Anna Bowes, co-founder of Savings Champion, says: “The competition seems to have completely dried up in the interest paying current account market and this move will bring TSB down to a slightly higher level than others, apart from the Nationwide Flex Direct account which is standing head and shoulders above the other banks.
“It will be interesting to see what Nationwide does next – although the Flex Direct account rate drops from 5% to just 1% after 12 months anyway.”
“In essence, all the others are cutting and they don’t want to pay more interest than they have to.”
TSB’s director of everyday banking products, Craig Bundell, says: “We've reviewed our rates, as we do regularly with all our products, to make sure they’re sustainable and give our customers a competitive interest rate as part of our current account offer.
“This new rate remains one of the best in the market. And, just like before, our Classic Plus account offers lots of benefits to customers."
Why are banks cutting rates?
In recent years, current accounts have offered a good option to savers who have been hit by low savings rates.
The low interest rate environment means a number of banks have slashed their current account rates and perks in the past year.
TSB’s cut comes just a month after Santander said it was cutting the rate on its 123 current account from 1.5% to 1% from 5 May.
Meanwhile, Natwest and RBS have both scrapped 2% cashback on household bills for current account holders.
Other banks which have cut current account rates in the past year include Lloyds and Tesco Bank.
Rachel Springall, finance expert at Moneyfacts, says: “It seemed almost inevitable to see a high credit interest rate in line for a cut in light of the upcoming rules to ban fixed overdraft fees. Providers will now have to decide whether they can sustain such lucrative perks – whether it be credit interest or some other benefit like cashback.
“Loyal TSB customers may now wish to look elsewhere for a higher level of credit interest, but keep in mind that there is no guarantee other providers won’t make a similar move in the months to come.”
How does it compare?
The current Moneywise Best Buy is the Nationwide FlexDirect which pays 5% interest on balances up to £2,500. This is an introductory 12 month offer - when it ends the rate drops to just 1%. Agreed overdrafts are free for the first year but you’ll need to pay in at least £1,000 a month.
The Club Lloyds current account from Lloyds Bank pays 1% interest on balances up to £3,999 and 2% on balances from £4,000 to £5,000. To earn this rate of interest you must pay £1,500 into the account every month and have two direct debits set up.
The Bank of Scotland Vantage current account pays 1% interest on balances up to £3,999 and 2% interest on balances from £4,000 to £5,000.
Holders must pay £1,000 into the account each month, stay in credit and pay out at least two direct debits. To access this interest rate you must open a standard current account with the bank and request its Vantage add-on.
Andrew Hagger, personal finance expert at Moneycomms, says the cut is “another kick in the teeth for TSB customers”.
He says: “This account paid 5% on balances up to £2,000 at its peak when they could earn £100 per year - now the return has been slashed to less than £2 per month.
“Unfortunately, it's a reflection of the wider savings market where rates have been sliding for a number of months.
Hagger suggests savers might want to consider switching to a new account from Natwest, which is currently offering a £175 incentive to switch - the equivalent of more than seven-years-worth of interest with TSB.
He says: “Banks and building societies are now offering just 1% or 2% in credit interest and savings rates but charging 40% to borrow by agreement - this model must look more than a little unfair and one sided from the customers viewpoint.”
TSB cuts interest
A few years ago saving money was great with TSB. Both its current account and its regular saving account were at 5%. Not anymore. I will leave TSB Bank. It is not worth using anymore.