Three of the country's best-paying current accounts will dramatically cut the interest and rewards they pay millions of customers early next year, MoneySavingExpert.com can reveal, as banks continue to slash headline rates on their top accounts.
Here are the key changes, which affect new and existing customers:
- Halifax's Reward and Ultimate Reward current accounts will pay £3/mth rather than £5/mth from next February.
- Bank of Scotland's Reward and Ultimate Reward accounts will also pay £3/mth rather than £5/mth from next February.
- The Club Lloyds current account will halve its headline interest rate from 4% to 2% in January.
- TSB Classic Plus current account will pay 3% on amounts up to £1,500 from January, down from 5% on up to £2,000.
Lloyds Banking Group – which owns Halifax, Bank of Scotland and Lloyds – admitted in August that rates and rewards on top accounts were under review due to "changing market conditions", while TSB also said it was reviewing the rate on its Classic Plus account.
The latest cuts follow Santander's decision to halve the headline rate of its flagship 123 account from 3% to 1.5% from 1 November, as we exclusively revealed.
How are Halifax and Bank of Scotland cutting rewards?
Around three million people currently have the Halifax Reward and Ultimate Reward accounts. Bank of Scotland also has similar Reward and Ultimate Reward accounts, though these are no longer open to new customers.
These accounts currently give you a £5 monthly reward (£60/yr) if you stay in credit, pay in at least £750/mth and have at least two direct debits leaving your account. This reward will fall to £3/mth (£36/yr) on 1 February 2017.
Ultimate Reward account-holders receive the reward as a deduction on the £15/mth account fee, which isn't changing – so overall they'll pay £12/mth instead of £10/mth when the changes take effect.
New customers who open a Halifax Reward or Ultimate Reward account will continue to receive a £100 switching bonus, so long as they use the Current Account Switch Service to fully switch from an existing account at another bank.
How is the Club Lloyds account changing?
Club Lloyds currently pays its top 4% rate on your entire balance if you have between £4,000 and £5,000 in the account, making it one of our current account best buys. It also pays 2% on balances between £2,000 and £4,000 and 1% on balances under £2,000.
However, this tiered interest structure will be scrapped from 8 January 2017 in favour of a flat 2% rate on all credit balances between £1 and £5,000.
Most Club Lloyds customers don't pay a fee – but if you don't pay in at least £1,500/mth there's currently a £5/mth fee, which will be cut to £3/mth from January.
Club Lloyds annual interest
Amount in account
|Now||4% (on entire balance) if you've £4k-£5k, 2% if £2k-£4k, 1% under £2k||£10||£15||£60||£196.50|
|From 8 Jan 2017||2% on up to £5k||£20||£30||£60||£99|
TSB's Classic Plus current account currently offers a rate of 5% on the first £2,000 in your account. However from 4 January 2017 that will drop to 3% on the first £1,500 - if you have more than £1,500 in your account you won't earn anything on the rest.
The Classic Plus account currently also pays 5% cashback on the first £100 of contactless payments you make every month.
- If you opened your Classic Plus account before 1 June 2016, you'll stop earning the 5% cashback on 31 December 2016.
- If you opened your Classic Plus account on or after 1 June 2016, you'll stop earning the cashback on 30 September 2017.
TSB Classic Plus annual interest
Amount in account
|Now||5% on up to £2k||£50||£75||£97.80||£97.80|
|From 4 Jan 2017||3% on up to £1,500||£30||£44.40||£44.40||£44.40|
What about Santander's 123 account?
Back in August Santander kicked off the trend for currrent account cuts by announcing it was halving the 3% headline rate on its 123 account from 1 November.
It also scrapped its current tiered structure where you earn less than 3% on balances below £3,000, and nothing below £1,000 - so from November its new 1.5% rate will apply on all balances from £1 to £20,000. The changes mean that for those with £20,000 saved, interest earnings will plummet from roughly £600 to £300 a year.
The 123 current account also comes with a £5 per month fee and pays up to 3% cashback on bills. Those features will remain.
Regular savers have also been cut
Sadly regular savings accounts haven't escaped banks' rate-cutting either, with First Direct, M&S and HSBC's market-leading accounts reducing their rates for new account-holders last month.
However the drop from 6% to 5% (or from 4% to 3% for some HSBC customers) wasn't as sharp as we've seen with current accounts, and won't affect existing customers currently locked into a 12-month fix.
New account-holders who pay in the maximum monthly amounts will now earn between £15 and £18 less in annual interest than they could have earned previously.
If your account works for you, don't ditch in anger
The immediate key message for anyone facing a rate or reward cut is not to ditch your account in anger. Instead, do a cool assessment of whether the account you have is working for you.
If you're currently winning, don't do anything for the time being. These rate and reward drops don't actually come in for three to four months, and the market's in a complete state of flux at the moment – there's a very real risk other rates may drop in the meantime. If the account you have is working for you, keep it until the cut hits, then reassess and see if it's worth switching.
If you're not currently getting the max out of your account though, it may be worth switching rather than waiting. See the Best Bank Accounts guide for our top picks.
We'll be doing a full analysis of these changes in the next few days, and will be covering them in next week's email.
What do the banks say?
A spokesperson for Lloyds Banking Group said: "These changes follow a review of our full current account range, taking into consideration changing market conditions. We believe these changes ensure that the products remain both attractive to customers and competitive in the market."
In an email to customers announcing the changes, TSB said: "As market conditions change, it's important that we review our rates to make sure they're sustainable for us, and right for our customers. So we can continue to help hard-working local people and their communities thrive."
Additional reporting by Rosie Bannister.