TSB to pay 5% interest on new current account – is it any good?

Update: 6 May 2015:Some of the account details have changed since the time of publication, but we have updated the story and the information below is all correct as it stands. We also published our latest Banking Service Index in February 2015.

TSB is launching a new current account which offers 5% AER interest on balances of up to £2,000. But is it worth switching to?

The new Plus account, which will be available online and by phone from 30 March and in branches a day later, is the bank's first new current account since it split from Lloyds in September last year (see our Best Bank Accounts guide for the current best buys).

Until now, the only new TSB product has been a balance transfer credit card, which didn't make our best buy tables.

But its new fee-free account could be a winner for some. It offers 5% AER in-credit interest as long as you pay in £500 each month. You also need to sign up for internet banking and paperless statements and correspondence.

Here are the key features of the Plus account:

• Fee. No fee.

• Switching bonus. No switching bonus.

• Interest. It pays 5% AER on balances up to £2,000. No interest is earned on balances above £2,000.

• Funding requirement. Customers must pay in at least £500 each month.

• Direct debits and standing orders. You don't need to transfer any existing direct debits or standings orders. You also don't need to set up any new direct debits or standing orders to get the account.

• Arranged overdraft cost: Up to £25 fee free, then 19.94% EAR + £6/month usage fee

• Unarranged overdraft cost: 19.94% EAR. There's a £10 buffer, then £5/day under £25, £10/day for £25+ (max £80/month); £10 unpaid item fees (max 3/day).

Is the TSB Plus account any good?

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 a main account for bills.

Our table shows how TSB'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.

Best bank accounts compared

MoneySavingExpert.com money analyst Helen Saxon says: "The maximum yearly interest you could earn is on the low side compared with other best buy interest-paying current accounts.

"But TSB's Plus account doesn't ask you to pay as much in each month than most other accounts, and you don't need to switch or set up any direct debits or standing orders to get it.

"It's also better than most other bank accounts, which pay you nothing when in credit.

"However, if you're thinking of switching, first work out how much you'll earn with the money you're planning on depositing. You should also think about whether or not you could get more by going for an account with a switching bonus, rather than one that pays in-credit interest.

"If you're unlikely to stay in credit, also take into account overdraft fees.

"TSB is a new entrant on the banking scene, and it'll be interesting to see what new products it offers as it continues to differentiate itself from Lloyds Bank."

What about customer service?

Lloyds TSB was split into two banks six months ago, with millions of customers being automatically transferred to TSB in one of British banking's biggest shake-ups. People who previously had multiple accounts with Lloyds TSB may have had some accounts moved to TSB while others stayed with Lloyds.

Our latest Banking Service Index published last month showed how account holders who were shifted to TSB were left disappointed by the service they'd received, with only 37% of customers rating its service as 'great' – making it the worst bank for customer service (see our TSB comes last in MSE's latest banking service index MSE News story).

At the time, TSB chief executive Paul Pester said the bank is "on a mission to deliver the best customer experience in banking".