TSB Classic Plus interest rate to fall to 0%

The bank has gradually reduced the interest rate on the account over the past couple of years from a high of 5%, dropping it to 1.5% on balances of up to £1,500 in May.

From 2 December 2020, it will stop paying any interest at all on the account. Existing customers will continue to earn 1.5% interest until that point, as long as you pay at least £500 a month into your current account, register for internet banking and opt for paperless statements and paperless correspondence.

As of today (23 September 2020), TSB has also closed the Classic Plus account to new customers and launched a new 'Spend and Save' current account, which doesn't pay interest. There are more details on that account below.

See our Best Bank Accounts guide for more on current accounts which pay interest, and our Top Savings Accounts guide for the top-paying easy-access savings.

How does the new 'Spend and Save' account work?

TSB's new 'Spend and Save' account is free, and TSB has updated its mobile app to support the account's features, including savings pots and transaction round-ups. It also offers cashback of £5/month for the first six months – but only if you make 30+ purchases on your debit card each month. Here's a round-up of some of the key features:

• Savings pots.

   These are separate from your main account and allow you to set money aside for different savings goals, eg, a holiday or a new games console. However, you can only have a maximum of five pots and TSB offers just 0.05% interest on cash in these pots in your first year, dropping to a dismal 0.01% from year two. For comparison, Virgin Money's current account lets you set up unlimited pots, and pays 0.5% interest on the lot (in addition to the 2.02% it pays on the first £1,000 in your main account).

• Transaction round-ups.

   Here it rounds up your purchases to the nearest pound, putting the difference away in savings (eg, buy a £2.20 coffee and it puts away 80p). This feature is already offered by a number of dedicated auto-saving apps, as well as app-only banks Monzo and Starling and high street banks Halifax and Lloyds.

• £5/month cashback (for the first six months after opening).

   To get this, you need to make 30 payments on your debit card each calendar month. While this could be lucrative if you make lots of smaller transactions each month, the fact that cashback's not linked to the amount spent means you could be better off shifting your normal spending to a cashback or rewards credit card (which has the added benefit that you'll still get some cashback if you happen to make fewer purchases in a particular month).

Overall, the cashback on TSB's new account could be a decent perk for those who can get it, but most will be able to match – or beat – what this account offers elsewhere, and the lack of interest means it won't be one of our top picks.

Which current accounts will still pay me interest?

Sadly, the offerings from interest-paying current accounts aren't as attractive as they used to be due to historically-low interest rates, with accounts cutting rates almost across the board.

But it's still possible to earn interest on your current account – here are a couple of top picks:

• 2.02% interest on up to £1,000 with Virgin Money. The Virgin Money* current account pays 2.02% AER on the first £1,000 in your account. There's no minimum pay-in required to get the interest, so it's good if you've low or unstable income.

• 2% interest on up to £1,500 for a year with Nationwide. 

  The Nationwide FlexDirect account's 2% AER rate is fixed for a year when you open the account, as long as you pay in £1,000+/mth.

  It drops to 0.25% on up to £1,500 after the first year, so look elsewhere then to see if it can be beaten.

We've full info and top picks, including accounts paying interest on balances of up to £5,000, in our Best Bank Accounts guide.

You can also get up to £125 for switching bank accounts. See our best bank accounts for switching perks for full info.

What does TSB say?

A TSB spokesperson said: "We regularly review our products to ensure they are fit for purpose and are in line with market conditions. Given the continued low interest rate environment, we have made the decision to reduce the interest on our Classic Plus account."