Tesco Bank is slashing the interest rate on its current account from 3 per cent to 1 per cent, affecting new applicants from today.
Existing account holders will see their rate fall from 14 June, and Tesco says it is writing to all affected customers over the next few days.
The Tesco current account offer has been in This is Money’s five of the best current accounts list for a while because of the fact it paid 3 per cent interest on balances of up to £3,000. It also gives you two Clubcard points for every £1 you spend at Tesco using it.
Now, the 1 per cent interest rate makes it a less attractive option.
Tesco Bank offered one of the better interest rates out there for current accounts, but that 3 per cent rate on balances up to £3,000 is being axed from today
In order to qualify for the deal, customers need to pay in £750 a month and hold at least three direct debits.
Beyond the interest rate cut there are no other changes affecting the account, meaning customers will still be able to use their card for Clubcard points.
However, those looking to switch away from the account for a bank with a better interest rate have a number of options.
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HOW THIS IS MONEY CAN HELP
Looking for a better bank? This is Money’s five of the best current accounts
Nationwide’s FlexDirect Account offers the highest available interest rate, paying out 5 per cent on balances of up to £2,500, but you can only earn that for a year. It requires you to pay in a minimum monthly income of £1,000.
TSB also offers a 5 per cent interest rate on balances of a slightly smaller £1,500, but its recent history of IT problems means it hasn’t featured highly on This is Money’s list. It requires a monthly deposit of £500 and you must maintain two direct debits.
Santander’s 123 Current Account pays customers up to 1.5 per cent interest on balances up to a much higher £20,000, as well as offering cashback of up to 3 per cent on household bills, for a £5 monthly fee.
However, now easy access savings rates have hit 1.5 per cent it is debatable as to whether or not it’s worth opening an account with a monthly fee paying that rate.
One tip is to consider banks that offer you access to a regular savings account as part of the current account deal, which is offered by the likes of Nationwide, First Direct and M&S Bank.
Andrew Hagger of Moneycomms said: ‘You can typically save a maximum of £250 to £300 per month at a rate of 5per cent.
‘Then at the end of the year you can take that lump sum and put it in a fixed-rate bond or other savings account and restart the regular saver for the next 12 months.’