Tesco Bank has launched a new current account paying interest and giving Clubcard points when you use its debit card. But is it worth switching to?
The account is Tesco's first foray into the current account market, joining its existing range of banking and insurance products (see our Best Bank Accounts guide if you're thinking of switching).
It's also the latest in a new wave of current accounts which offer more attractive returns than many savings accounts.
Our analysis of the deal shows it's a good account, but it can be beaten. Here are the key features:
- Fee. No fee if you deposit more than £750/month. There's a £5 monthly fee if you deposit less than £750/month.
- Switching bonus. No switching bonus.
- Interest. It pays 3% AER on balances of up to £3,000. It doesn't pay interest on balances above £3,000. This is an on-going deal, not an introductory offer.
- Other benefits. Customers get one Clubcard point for every £4 spent in Tesco using their Visa Debit card, and one point for every £8 spent outside Tesco. One point's worth 1p if used for in-store shopping at Tesco, or you can normally get two, three or four times the value on your points by converting vouchers into Clubcard Boost Partner tokens for experiences, restaurants and more. See our Reclaim Tesco Vouchers guide for more info.
- Direct debits and standing orders. You don't need to set up direct debits or standing orders.
- Overdraft. It has an arranged overdraft fee of 18.9% EAR. Unarranged overdrafts cost £5/transaction, up to a maximum of £50/month. You'll automatically receive a text message and email to tell you to pay in funds if you're in your overdraft. You won't be charged if you make a sufficient deposit or transfer before 5pm on that day.
Interestingly, despite Tesco having the biggest potential branch network in the country, you can only open the account online or in three stores, which have been trialling the scheme (Corstorphine, Coventry and West Durrington).
You can make deposits and withdrawals at the customer services desks of over 300 Tesco, Tesco Extra and Tesco Metro stores, but no other in-branch facilities are available. Customer service desks tend to open until 8pm/9pm, although this will vary by store.
The main operating of the account is online or via Tesco's banking app. Tesco says its customers "overwhelmingly" said they wanted a digital proposition, so this is what it's done.
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How does the account compare?
These days, there are many current account deals to choose from. But the two key incentives tend to be either a switching bonus, or in-credit interest.
You need to work out which deal is best for you, depending on how much you can afford to deposit and whether or not you plan to use it as your main account for bills.
Our table shows how Tesco Bank's new account fares compared to our best buys for those in credit. If you're not in credit, or know you're likely to dip into your overdraft, check both the arranged and unarranged overdraft fees on any account before applying.
|Current account||Switching bonus||In-credit interest (AER) and/or rewards||Min monthly income||Min standing orders/direct debits||Max interest earned/year (i)|
|First Direct||£125 (ii)||None (iii)||£1,000||None||£0|
|Halifax||£100||£5/month after tax.||£750||At least two||£60|
|Lloyds||None||4% interest on up to £5k (iv)||£1,500||At least two||£157|
|M&S Bank||£100 M&S giftcard||1 point per £1 spent in M&S. 100 points are worth £1 in M&S vouchers.||£0||None||£0|
|Nationwide||None||5% interest up to £2,500 for 12 months, 1% interest after.||£1,000||None||£98 (1st year only)|
|Santander (v)||None||3% interest on £3k-£20k (vi). Plus up to 3% cashback on certain bills||£500||At least two||£450 (after fee)|
|Tesco Bank||None||3% interest up to £3,000. One Clubcard point for every £4 spent in Tesco. One point for every £8 spent outside Tesco.||£750||None||£71|
|TSB||None||5% interest up to £2,000||£500||None||£78|
|(i) Approx gross interest you'd earn in a year, after basic rate tax if you were to hold the max balance. (ii) Via MoneySupermarket. It's £100 if you go direct. (iii) Our users voted First Direct as having the best customer service. (iv) 1% up to £2,000, 2% on £2k-£4k, 4% on £4k-£5k (v) Santander's 123 account has a £2/month fee. (vi) 1% on £1k-£2k, 2% on £2k-£3k.|
MoneySavingExpert.com money analyst Helen Saxon says: "This is a massive day for British banking with one of the UK's largest banks and largest supermarkets roaring full steam ahead into the market.
"But beware of getting too swamped by all the hype. While the account's good, it is beatable by other higher interest-paying accounts and cashback credit cards. But if you're looking for rewards and can't or don't want a credit card, this is a good option.
"It's also got a relatively low minimum pay-in, though watch out for the fee if you can't pay this much."