A year ago, in the aftermath of the Bank of England’s decision to cut the base rate to 0.25 per cent, a string of major banks announced they were reducing interest rates on their flagship current accounts.
One year on, with the base rate having returned to its previous level of 0.5 per cent, are current account customers in line for a savings boost? Bank of Scotland, Halifax, Lloyds Bank, Santander and TSB were the five major providers that slashed their interest rates and rewards following the August 2016 base rate cut. Santander made the first move, halving the top rate of interest on its 123 Current Account to 1.5 per cent in November 2016.
Lloyds Bank and TSB followed suit in January 2017, the Club Lloyds account saw its top rate of interest cut from 4 per cent to 2 per cent, while TSB reduced both the interest rate – from 5 per cent to 3 per cent - and restricted this to the first £1,500 of funds in its Classic Plus account - down from £2,000.
Although not an interest-paying account, Halifax Reward account holders saw their monthly reward payment drop from £5 to £3 in February. Bank of Scotland then slashed the headline rate of interest on its Vantage account from 3 per cent to 2 per cent in June.
No plans to change
Moneywise (This is article was originally written by our sister publication Moneywise) contacted each of these five banks to see if they planned to pass on the base rate increase to their customers, but was told by each that they had no plans to do so.
They all said that despite rates falling when the base rate was lowered last year, their products were not formally linked to the base rate and there were no plans to give better returns to their customers.
TSB told Moneywise it believes its account remains highly competitive in today’s marketplace, while a spokesperson for Lloyds Banking Group, which includes Bank of Scotland, Halifax and Lloyds Bank, said: ‘The interest rates on our current accounts are not linked to the base rate, this is just one consideration in our overall decision.’
Santander has already announced that its customers with variable rate mortgages will see their interest rates increased by 0.25 per cent, while variable savings rates will return to the levels they were last summer before the base rate cut. However, it says the pricing of its Santander 123 Current Account will not be altered.
Loyalty very rarely pays
With rates on traditional savings accounts nudging upwards since the base rate rise, will this signal the end of consumers using current accounts to save?
Anna Bowes, director of advice site Savings Champion, says current account customers could be left feeling short-changed by their providers.
‘Although not strictly savings accounts, high interest current accounts have very much become part of the savings landscape and have been the saver’s saviour over the last few years following the dramatic fall in the rates of interest being offered on standard savings accounts,’ she argues.
‘As a result, many savers will be bitterly disappointed that the interest rates on some of the high interest current accounts are not going to be increased following the Bank of England base rate rise, especially since they have not been immune to cuts over the years.’
Ms Bowes says customers should assess their accounts and see if they can switch to a better deal elsewhere.
‘As best buy standard savings accounts begin to increase and overtake the rates of interest being offered by current accounts, savers should abandon the latter in favour of the more straightforward savings accounts, including Cash Isas where appropriate.
‘Other features, such as cashback, can still make them worthwhile, but like any account, it’s important to regularly review and switch when you are no longer getting the best deal. Loyalty very rarely pays.’
This is article was originally written by our sister publication Moneywise.
Keep up to date with all the latest personal finance news and investment tips by signing up to our newsletter. Email subscribers will also receive a free print copy of Money Observer magazine.
Subscribe to Money Observer Magazine
Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.Subscribe now