Saving & Banking

Tesco Bank pledges to freeze rates at 3%

The bank said that current account customers would be guaranteed a 3% interest rate on balances up to £3,000 from 1 April 2017 until 1 April 2019.

Current account customers will receive even more Clubcard points for every £1 spent in Tesco.

This is an increase from the current one point for every £4 spent, helping customers to earn benefits worth up to an estimated £158 per year with no monthly fee.

The announcement comes after £2.5 million was stolen from 9,000 customers in a cyber-attack last November.

Rachel Springall, finance expert at Moneyfacts.co.uk, said: “This move is likely to gain Tesco Bank some positive attention after some negative press last year and as other brands continue to cut rates and perks, its great timing for them to make this promise to retain such a competitive interest rate of 3% and could draw in new customers.

“The account has now offered 3% since its launch in June 2014 which has been a consistently good deal when you consider it also has a competitive overdraft structure – unlike other accounts such as Halifax who charge a daily fee for going overdrawn on their Reward Current Account.

“We are likely to see a continuing slowdown in the cash perks and interest on offer from the big high-street banks, so the interest rate guarantee from Tesco Bank could sway customers who are struggling to earn a decent return on their hard earned cash.”

Plummeting rates

A raft of banks have slashed interest rates since the Bank of England cut the base to a new record low of 0.25% in August.

Last November, Santander halved the interest rate on its hugely popular 123 account from 3% to 1.5% on balances up to £20,000.

Under the old rate, customers would have earned £600 a year on savings of £2,000. With an interest rate of 1.50% this figure drops to £300.

TSB, Lloyds and Halifax have also cut rates on their highest-paying bank accounts in another huge blow to savers.

Lloyds cut the interest rate on its Club Lloyds current account from 4% to 2% in January, while TSB reduced the rates on its Classic Plus account from 5% on balances up to £2,000 to 3% on balances up to £3,000.

Halifax has also reduced the its £5 monthly reward on its Reward and Ultimate Reward current account to £3 a month.

According to Moneyfacts.co.uk, only 44 of 669 savings accounts currently on the market can beat or match inflation.

In December there were four cuts to every rate rise. The number of rate decreases was 84 compared to 21 savings rate rises, with some deals falling by as much as 0.60% – much higher than the current Bank of England base rate of 0.25%.

Rate reductions in the savings market have now outweighed rate rises for 15 consecutive months.

Springall said: “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% on regular savings accounts with HSBC, Nationwide, 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. If customers don’t want to switch their current account but they do want to start a savings goal, then Skipton Building Society pays a fixed 3.50% for 12 months on its regular savings account.

“The best interest rate on a five-year bond right now is 2.10% if savers have £25,000 to invest with Bank of London and The Middle East. The next best is from Atom Bank and Ikano Bank paying 2.05% over five-years.

“NatWest are currently paying 3% cashback on utility bills on its Reward Current Account which costs £3 per month, so it’s worth considering if customers want some rewards without keeping their savings in their main current account. Plus, there is no reason why they couldn’t open a Tesco current account for their savings to earn 3%.”

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