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Lloyds Bank and Bank of Scotland slash current account interest rate

Which? looks at whether it’s worth switching

Lloyds Bank and Bank of Scotland slash current account interest rate

Lloyds Bank and Bank of Scotland will cut the interest paid to current account customers from 2% AER to 1.5% AER from 1 July. So which competitor current accounts still offer an inflation-beating rate?

The move by the high street bank will affect new and existing Club Lloyds and Vantage customers who use their current account to earn a better rate on their savings.

Which? takes a look at how the new Lloyds Bank and Bank of Scotland rate compares with other current accounts that pay interest when you’re in credit.


How the rate cut will impact you

If you have a Club Lloyds or Bank of Scotland current account, and have chosen the ‘Vantage’ option, you currently earn 2% AER on balances up to £5,000.

But from 1 July, the rates on these accounts will be reduced to 1.5% AER, which means the most interest you can earn in a year will fall from £99 to £74.50.

To qualify for interest on the Club Lloyds account, you will still need to set up at least two direct debits. There’s also a £3 monthly fee if you pay in less than £1,500 a month.

Similarly, Bank of Scotland current account customers that opt for Vantage will still need to pay in £1,000 a month, and have two direct debits set up, to earn the interest rate.

Best alternative high-interest current accounts

If you’re looking for an alternative home for your cash, there are a number of current accounts paying well above inflation – and beating out regular savings accounts.

The Nationwide FlexDirect account pays a market-leading 5% AER on balances up to £2,500 for 12 months as long as you pay in £1,000 a month.

The TSB Classic Plus account also pays 5% AER, but only up to balances worth £1,500 – although the rate isn’t limited to 12 months.

The Tesco Bank Current Account pays 3% AER (fixed until 1 April 2019) on balances up to £3,000 when you pay in £750 a month and have three direct debits set up.

For those with larger balances, the Santander 123 Current Account could be a better fit. It pays 1.5% AER on balances up to £20,000 as long as you pay in £500 a month and have two direct debits set up.

Is it worth switching to another account?

The table below sets out what interest you can earn if you have a £5,000 balance, as well as the hoops you need to jump through for the best alternative high-interest current accounts.

Current account In-credit interest rate Maximum deposit interest applies to Interest on £5,000 balance after a year Number of direct debits to earn interest Minimum monthly pay-in How many accounts can you open?
Nationwide FlexDirect 5% AER /
4.89% gross
£2,500 £122.50 2 £1,000 2 (1 must be joint)
TSB Classic Plus 5% AER/
4.89% gross
£1,500 £73.35 0 (must register for internet banking and paperless statements) £500 2 (1 must be joint)
Tesco Bank Current Account 3% AER /
2.96% gross
£3,000 £88.80 3 £750 2
Santander 123 Current Account 1.5% AER / 1.49% gross £20,000 £74.50* 2 £500 2 (1 must be joint)
Lloyds Bank Club Lloyds 1.5% AER / 1.49% gross £5,000 £74.50 2 £1,500 2 (1 must be joint)
Bank of Scotland Classic with Vantage 1.5% AER / 1.49% gross £5,000 £74.50 2 £1,000 3

*£5 monthly fee amounts to £60 a year, so will affect the money you earn in interest.

If you have a £5,000 balance, the Nationwide FlexDirect account is probably the best alternative for you. However, you will need to find a new place for your cash after the first year when the rate drops to 1% AER.

Should you use a current account as a savings account?

You’d need to lock up your savings for at least a year to rival the in-credit interest rates offered on the best high-interest current accounts.

Even though some providers have cut back, a current account may still be worth the effort to maximise returns on your cash savings.

Saving in a current account offers you easy access to your cash and you’ll get the same Financial Services Compensation Scheme (FSCS) protection that you get with a traditional savings account.

However, you might find it tempting to dip into the savings you keep in your current account, so you might be better off separating your money. You can compare savings accounts using Which? Money Compare.

There are also several hoops to jump through to qualify for interest on different types of current account. Most of the best deals will require at least two direct debits to be set up and have a minimum monthly funding requirement.

If you’re interested in maximising your returns by using current accounts, check out how to do it in our video below.


Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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