TSB reveals second Classic Plus current account interest cut inside a year to just 1.5% – compared to 5% last year
- TSB’s Classic Plus account currently pays 3% on balances of up to £1,500
- It reduced the rate from 5% last July, after reintroducing it in April 2018
- It is the latest bank to cut current account benefits
Customers of TSB’s Classic Plus current account will see the amount of interest they earn cut in May, from 3 per cent to 1.5 per cent.
It is the second cut to the account in 10 months, after the bank reduced the interest rate from 5 per cent to 3 per cent last July.
It means the account, which pays interest on balances of up to £1,500, will from 2 May pay less than a third of what it did 12 months ago.
TSB is cutting the rate on its Classic Plus account in half to 1.5% on 2 May
TSB, which is in the middle of an extensive revamp following an IT meltdown in April 2018 under new chief executive Debbie Crosbie which will also see it close 82 of its 540 branches, blamed persistently low interest rates for the proposed cut.
It insisted the 1.5 per cent rate remained ‘one of the best in the market.’
Andrew Hagger, founder of personal finance site Moneycomms, said the announcement was ‘more disappointing news for TSB customers.’
He added: ‘The switch away from an overdraft tariff which currently stings customers with a £6 monthly fee even if they are only overdrawn for one day will no doubt hit TSB’s revenue, and despite changing to a 39.9 per cent interest rate model, it may not be enough to plug the gap so it’s looking to make savings elsewhere.
‘This is similar to Santander which moved from £1 per day to 39.9 per cent but also needed to cut credit interest and reward benefits on its 123 account.
‘Banks and building societies are now offering 1 per cent or 2 per cent in credit interest and savings rates but charging 40 per cent to borrow by agreement – this model must look more than a little one sided from the customer’s viewpoint.’
TSB’s 5 per cent interest rate was reintroduced by former chief executive Paul Pester at the end of April 2018 in a bid to keep hold of customers, after the botched IT transfer locked 1.9million customers out of their accounts.
However, that rate lasted just 15 months before it was cut to 3 per cent, with the bank introducing a £75 refer a friend bonus to try and compensate.
Former TSB chief executive Paul Pester brought back TSB’s 5% in-credit interest offer in April 2018, but it was cut to 3% last July. However, the rate faces the axe again in May
It upped that to £100 in July, with existing customers able to earn up to £500 in referral bonuses provided friends switch through the Current Account Switch Service, set up two direct debits and pay in £500.
Those looking to earn the in-credit interest rate must pay in £500 a month, register for internet banking, paperless statements and paperless correspondence.
While the new 1.5 per cent interest rate does remain one of the better rates around, after Nationwide’s 12-month FlexDirect introductory rate of 5 per cent on balances of up to £2,500, and tied with Santander’s 123 current account which pays 1.5 per cent on balances of up to £20,000, TSB is the latest of a string of banks which have cut their current account benefits.
NatWest, Royal Bank of Scotland and Santander have all either introduced or announced caps or reductions on how much cashback customers can earn, while Santander is also cutting the rate paid on 123 account balances to 1 per cent in May.
Meanwhile last year Lloyds Bank, Nationwide and Tesco Bank all announced cuts to the interest they’d pay certain current account customers.
This led This is Money to ask whether bank account benefits were increasingly a thing of the past, and whether customers would either no longer bother switching current accounts, or do so on the basis of one-time cash switch bonuses.
Customers of Classic Plus with £1,500 in the bank will earn £22.38 a year from May, down from around £44.40 currently.
By contrast, both HSBC and NatWest currently offer £175 switch bonuses to those who sign up.
According to the figures from the Current Account Switch Service, TSB lost a net 26,886 current accounts in the first nine months of this year.
THIS IS MONEY’S FIVE OF THE BEST CURRENT ACCOUNTS
Santander’s 123 Lite Account will pay up to 3% cashback on household bills. There is a £1 monthly fee and you must log in to mobile or online banking regularly, deposit £500 per month and hold two direct debits to qualify.
NatWest’s Reward Silver Account offers a £175 switching incentive to new and existing customers as well as insurance cover for European travel. Customers can also earn rewards which can be redeemed as cash or gift cards.
Club Lloyds’s Current Account offers benefits such as cinema tickets, magazine subscriptions and dining cards to current account holders. There is no cost if you pay £1,500 each month, otherwise a £3 fee applies. Must hold two direct debits to earn monthly credit interest.
HSBC’s Advance Account offers £175 cash if you switch to it. The account comes with a £1,000 starting overdraft and 2.75% regular saver account. There is no monthly fee, however you must deposit £1,750 per month into the account.
Nationwide’s FlexDirect account comes with 5% interest on up to £2,500 – the highest interest rate on any current account – if you pay in at least £1,000 each month, plus a fee-free overdraft. Both perks last for a year.
