Tesco Bank is to guarantee its current account customers a 3 per cent interest rate for the next two years, bucking a recent trend of perks being slashed.
The Edinburgh-based bank, which pays 3 per cent on balances up to £3,000, said the guarantee will be placed on its rate from 1 April until April 2019.
We are taking a step that demonstrates we put our customers firstBenny Higgins
Current account customers will also receive more Clubcard points for their spending in Tesco when the guarantee period starts. They will get one Clubcard point per £1 spent in the supermarket during the guarantee period, increasing from the current one point for every £4 spent, on top of the normal Clubcard points collected.
The move comes as a wave of banks have cut their interest rates on current accounts or reduced their perks, following the cut in the Bank of England base rate cut to 0.25 per cent last year.
Earlier this week, Halifax said it will chop the bonus it offers customers to switch from the start of next month, from £100 to £75. Halifax had previously announced the £5 per month it paid to its Reward current account customers who fulfil certain criteria would fall to £3.
Santander has halved the 3 per cent rate on its flagship 123 current account, to 1.5 per cent. And Lloyds Bank has cut its Club Lloyds credit interest rate from 4 per cent to 2 per cent, while TSB reduced a 5 per cent rate on its Classic Plus account to 3 per cent.
Nationwide Building Society continues to offer customers 5 per cent on balances up to £2,500 for the first 12 months.
The most recent figures from the seven-day current account switching service showed that, between 1 April and 30 June 2016, Santander, Nationwide and Halifax continued to make particularly strong customer gains, while challengers Tesco Bank and TSB also made net increases.
When it first launched its current account in 2014, Tesco Bank chief executive Benny Higgins said it would bring a “fiercely competitive” customer focus from the retail sector which did not exist in banking.
He said today: “We recognise that we live in a time of uncertainty, where our customers are working hard to get as much value as possible from their money, and so we are taking a step that demonstrates we put our customers first.”
Rachel Springall, a finance expert at website Moneyfacts, said: “It’s positive to see a promise to retain a competitive rate of interest for the next few years at a time when many other current accounts have suffered interest rate cuts, including Santander and Lloyds Bank.
“Savers will need to remember that if they have a significant amount of cash over £3,000 to invest then they will need to look at alternative accounts to make their money go a bit further.
“If they have a short-term savings goal they can earn up to 5 per cent on regular savers with HSBC, first direct and M&S Bank if they switch their current account to them, so it’s worth keeping in mind that customers need to assess the overall package of a current account and other benefits that that come with it before they switch.”
Andrew Hagger, a personal finance expert at MoneyComms, said: “Official current account switching numbers have remained sluggish as consumers often don’t know whether it’s worth moving banks if rates are going to be cut within a short while of them moving – so this two-year guarantee could be enough to sway a good number of those currently sitting on the fence.”