The big high street banks have slashed the rates of interest available via their current accounts. Here’s what’s happened, and my thoughts on whether you should be switching to a different bank.
It’s been a great three years for getting high-interest rates from high street banks. I’ve probably made around £1,400 in interest since September 2013 – but the good times are over. TSB, Santander, Lloyds and Halifax have all announced the end of returns as high as 5% on your savings. First Direct, M&S and HSBC have also cut the rates on their Regular Savings accounts. Full details on the changes further down the page.
It’s a real shame. The high-interest rates were a great incentive to get people thinking about what their bank did for them. If you had a little bit of savings you earn far more than what you’d get in an ISA – potentially hundreds of pounds. But no more.
I wouldn’t be surprised if the other bonuses and offers available to tempt you to switch also get cut or watered down over the next few months. Why would a bank give you a free £100 “thank you” when your current bank only gives you £36 to stay with them.
I hope I’m wrong and instead we start seeing other creative ways to entice you to switch. Until that happens, if it does at all, your switching options are far less attractive.
Should you switch bank?
So should you switch your bank if your money is currently in one of these accounts? Maybe.
It’s still worth thinking about interest as factor for which bank – or banks – you choose. The rates you’ll still get when the changes happen will still be higher than most saving accounts and ISAs.
But you could also save or earn more money by thinking about cashback, switching bonuses and overdraft charges. More on those later.
What interest rates the banks are going to offer
Nationwide, Tesco and Bank of Scotland haven’t announced any cuts… yet. I’d expect them to follow suit sooner rather than later, but for reference here’s what they currently offer. If they stay the same they’re the new top picks.
- Nationwide Flex Direct – 5% on balances up to £2,500 for first year, 1% after that
- Tesco Bank – 3% on balances up to £3,000
- Bank of Scotland – 3% on balances between £3,000 and £5,000
Here are the changes announced by Santander, Lloyds, Halifax and TSB and when they will kick in.
I’ve added in a best possible return figure based on having the max savings and meeting the other criteria.
Santander 123
- What you’ll get: 1.5% interest on all balances up to £20,000; cashback on household bills
- Best possible annual return: £300 (presuming cashback covers the monthly fee)
- When it will change: 1st November 2016
- Requirements: Pay in £500 a month, two Direct Debits
- Fee: £5 a month
TSB Classic Plus
- What you’ll get: 3% interest on all balances up to £1,500
- Best possible annual return: £45
- When it will change: 4th January 2017 if you opened your account before 1st June 2016, 1st September if it was opened on or after 1st June 2016.
- Requirements: Pay in £500 a month and register for internet banking
- Fee: None
Lloyds Club
- What you’ll get: 2% on all balances between £2,000 and £4,000; six free cinema tickets
- Best possible annual return: £80
- When it will change: January 2017
- Requirements: Pay in £1,500 a month, have two Direct Debits
- Fee: £3 a month if you don’t make monthly minimum payment
Halifax Reward
- What you’ll get: £3 “reward” each month
- Best possible annual return: £36
- When it will change: 1st February 2017
- Requirements: Two Direct Debits, pay in £750 a month
- Fee: None
Which bank is best for you?
Except for the bonus payments, there’s nothing stopping you actually opening more than one account and taking advantage of all the different incentives. I’ve got eight different bank accounts! Ideally though look to combine a series of the offers such as a cash bonus and a linked Regular Savings account.
Cash bonus payments
I’d say strike while you still can. Co-op and HSBC currently offer £150, while Halifax and First Direct are giving away £100. You might be able to get a couple of switches done before Christmas if you’re quick!
Cashback on bills
As well as the interest paying Santander 123 account, there’s also a Santander 123 Lite (£1 a month fee) and Natwest Rewards (£3 a month fee) which each give you cashback on household bills. The money back should cover the fee and more. We’ve got a Natwest account just for our bills.
>> More on the different cashback current accounts
Linked Regular Savings accounts
A Regular Savings account can have a higher rate of interest than elsewhere, but you can usually only pay in £250 to £300 a month. Still with the standard interest rates being cut, getting 5% on at least part of your money is GOOD. You generally need to have a current account with the bank to get the best rates. At the moment this includes First Direct (5%), M&S (5%), Nationwide (5%) and HSBC (5%).
Overdraft fees
If you’re often going into the red, a 0% overdraft or lower fees will probably be better value than a £100 bonus as the fees can very quickly add up to more than that.
Insurance
Nationwide will give you inclusive travel, breakdown and gadget insurance, either free or for a monthly fee, with some of their accounts. It’s worth working out if you’re paying more getting these separately.
To get more direct debits open 1 or 2 Tesco Instant Access Savers. They only pay a miserable 0.25% but you can make as many direct debits as you need (at say £5 each) to be taken from any other account into the saver. You’re direct debiting to yourself!…and you can then transfer out to a more generous account when it suits you. I have 2 different Tesco dd’s for the Bank of Scotland without any issues.
Hi, thanks for the article! You notified me before my banks have.. I’m thinking of setting up a Bank of Scotland account since the others are rapidly dropping their rates, but I was wondering how you managed all the direct debits? Currently my phone/TV/internet and gas/electricity are with Santander for the cashback, and the other 2 are with Lloyds. Do you have any suggestions on what else could be used as a direct debit for bank of Scotland?
My only thought would be Bank Of Scotland could follow suit, so it might be worth waiting a little while – unless you want to grab one of the bonus payments for switching. I’ve set up a few charity ones – yes that does negate the interest a little, but I would have given to those charities anyway.