Savvy savers can earn up to 1.5% interest from a current account with Lloyds Bank and Bank of Scotland. But returns will be slashed in October, the bank announced this week, as it shakes up the way interest is paid.
The providers are the latest to scale back the interest they pay on current accounts, following TSB and Tesco Bank’s changes earlier this year.
Which? explains what the latest rate cut means for existing Lloyds Bank and Bank of Scotland customers, and which interest-paying current accounts are still worth going for.
Lloyds Bank and Bank of Scotland will replace the flat-rate 1.5% AER interest it currently pays on its Club Lloyds and Vantage accounts with a two-tiered rate.
From 1 October 2019, the accounts will pay 1% AER on balances between £1 and £3,999.99 – representing a 0.5% cut to the current rate.
The accounts will then pay 2% AER on balances between £4,000 and £5,000 – a 0.5% increase.
Like before, you won’t earn any interest on balances above £5,000.
The change means the maximum amount of interest you can earn annually on the accounts will fall from £75 to £60 a year. So, those with pots of £5,000 invested in the accounts will earn £15 less each year under the changes.
The banks wouldn’t reveal how many customers are impacted by the move, but said they will be writing to all the customers affected.
Why has Lloyds cut the rates?
A Lloyds Banking Group spokesperson told Which?: ‘Our Club Lloyds account and Bank of Scotland Vantage add-on continue to recognise customer loyalty through the associated benefits available exclusively to customers.
‘Along with the changes to credit interest for Club Lloyds, we have enhanced our existing range of lifestyle choices, and continue to offer exclusive mortgage and savings rates available to existing customers.’
Are current account rates getting worse?
Current accounts can be an alternative for savers chasing high returns, but the level of interest being offered is on a downward slide.
Earlier this month, TSB cut the interest rate on its Classic Plus account from 5% to 3% AER on balances up to £1,500. Customers can now earn a maximum of £45 in interest a year, down from £75.
The bank had previously upped the rate on the account in May 2018 by way of an apology for the major IT issues that brought down online banking.
Meanwhile, in June this year, Tesco Bank cut the rate on its Current Account from 3% to 1% AER.
Find out more: the best high-interest bank accounts
Which current accounts pay the most interest?
If you’re a Lloyds Bank or Bank of Scotland customer who has £5,000 to save, it may be worth moving your money to a more competitive current account.
The Nationwide FlexDirect pays 5% AER on balances up to £2,500 for 12 months, which means you could earn up to £125 in a year.
For larger pots, the Santander 123 Current Account pays 1.5% on balances up to £20,000. The account comes with a £5 monthly fee, but even taking that into account, you could pocket an extra £240.
The table below shows all the current accounts that currently pay interest on balances.
We’ve crunched the numbers to see the maximum you can earn in a year based on the limits of each account.
|Provider||Account name||Interest rate AER||Min/max balance that can earn interest||Maximum you can earn|
|Tesco Bank||Current Account||1%||£1/£3,000||£30|
|Starling Bank||Personal Account||0.5%||£2,000/£85,000||£425|
|Clydesdale Bank/Yorkshire Bank||B Account||0.5%||£1-£2,000||£10|
*Account comes with a £5 monthly fee
If you don’t fancy switching current account, or enjoy the other perks that come with the Lloyds Bank or Bank of Scotland accounts, you may want to consider an easy-access savings account.
The best easy-access savings accounts currently pay 1.5% AER. You can compare deals using Which? Money Compare.
Can a current account replace your savings account?
With savings rates still in the doldrums, some savers are opening multiple high-interest current accounts to maximise their returns.
The downside of saving with this type of account is the hoops you have to jump through to earn the interest.
Most require you to make minimum monthly payments, and will only pay interest up to a certain amount.
In addition, most banks will limit these accounts to two per person, one of which must be a joint account.
Nonetheless, the rewards can be high. We explain how you can work within these rules to boost your savings in the video below.