TSB will halve the interest rate it pays on its Classic Plus current account from 3% to 1.5% AER from 2 May. Is it time to switch?
This move comes after Santander announced it would cut interest rates on its 123 current accounts from 1.5% to 1% from 5 May - squeezing the options for customers who like to use their current account as an easy-access savings account.
Here, Which? calculates what the cut will mean for TSB customers, how it will compare with what other banks are offering and whether you should switch or consider a savings account.
From 2 May, the interest on Classic Plus current accounts will drop from 3% AER to 1.5% AER variable, meaning customers will earn £22.02 less a year.
Interest is only payable on the first £1,500 in credit on your account so the maximum you will be able to earn after a year is £22.38 provided the rate doesn't change any further.
Other qualifying conditions that you must meet to earn interest include:
This latest hit could mean customers vote with their feet and switch to another provider.
Those hunting for interest on their current account balances may consider switching but high-interest current accounts on offer elsewhere are also becoming leaner.
Nationwide's FlexDirect pays 5% AER on balances up to £2,500 so the most you can earn is £125 - over £100 more than at TSB from 2 May.
Of course, there are catches. Although there are no fees with FlexDirect, that attractive 5% rate is dropped to 1% after the first year. You must also pay in £1,000 monthly and can't have opened a FlexDirect account before.
The Santander 123 account will pay 1% AER on from 5 May. Although it's a smaller rate you can save up to £20,000, so is more suitable for larger balances. However, you will need to pay £5 a month to have the account- or £60 a year.
You would have to keep at least £18,500 in a Santander 123 account for a year, to equal the return offered by Nationwide, after the £5 a month fee is factored in.
Often the hoops savers would have to jump through to meet the conditions of a current account such as the minimum monthly funding amount and account fee were worth it.
But from May this savings hack might have to be revised as current account interest rates are cut down to the bone.
Right now the highest-paying easy-access savings account pays 1.35% AER, so Nationwide's 5% rate and even TSB's 1.5% rate is likely to still be compelling.
However, Santander's 1% rate will be well below what you can get from the savings market. So those with money stashed in a 123 account may need to turn to a saving account to ensure their money is getting the best return.
When looking for a new current account that pays interest, the headline rate shouldn't be your only priority.
It's also worth considering other benefits you get as a customer like a linked savings account, cashback, fraud protection and customer service.
Nationwide, for example, is a Which? Recommended Provider and has been for the last five years. Real customers rated the brand highly and its products continue to push it into the gold standard.
This is an important benefit for peace of mind as the number of authorised push payment scams escalates.
TSB is not a signatory of this code but it promises to reimburse all victims of fraud under its guarantee.
If you are considering switching, it makes sense to use the automated seven-day Current Account Switch Service.
This guarantees that if something goes wrong during the switch, any charges or interest incurred (as a result of the switch) on the old or new account can be refunded.
It provides more protection than manual switching but it does mean your old account will be closed down.
Over one million current accounts have been switched since the service was launched in 2013. In the last quarter of 2019, over 99% of switches were completed within the promised seven working days.