Tesco Bank savers could miss out on rate rises unless they take action – here's what to do
Tesco Bank has upped the interest rate on its easy-access cash ISA, but existing customers can only benefit by opening a new account and transferring over their savings. Here's the situation and some tips for those affected.
Tesco Bank's 'Instant Access Cash ISA' now pays newbies 1.45% (up from 1.36%). This headline rate is made up of two separate components: an underlying variable rate of 0.25%, plus a bonus rate of 1.2% which lasts 12 months – but it's only the bonus that has gone up.
This means existing Tesco Bank savers will only be paid the rate that applied at the time they took out their account – not the new, higher one. Tesco wouldn't tell us how many customers are affected, but its website says it has over five million customers.
The rise comes after the Bank of England increased the UK base rate for the sixth time in the space of a year. In response, many providers have upped the rates they offer savers – see our Top savings accounts and Top cash ISAs guides for the latest best buys.
Other providers currently pay more than Tesco Bank – so consider ditching and switching
Other easy-access cash ISAs
At the moment, Paragon Bank tops our easy-access ISA table with an interest rate of 1.55%. Unlike Tesco Bank's ISA, this one has a limit on the number of withdrawals you can make in a year, so if you need to dip into your savings more frequently you could consider Marcus by Goldman Sachs at 1.5%.
This account also features a bonus rate of 0.25%, but when the bonus increased earlier in the year, existing customers were able to switch to the better rate via their online banking account without having to set up an entirely new one. For further alternatives, visit our Top ISAs guide.
Warning – If you want to transfer, never withdraw money from a cash ISA. In most cases, you'll immediately lose all the lasting tax benefits. Instead, request an ISA transfer with your bank, and they'll send the money from the old account into the new one, keeping your ISA cash tax free.
Non-ISA savings accounts
Standard easy-access savings accounts pay substantially more than ISAs – Cynergy Bank's easy-access savings account currently offers 1.85% (including a fixed bonus of 0.15% for 12 months), while Zopa offers 1.81%.
So it's worth considering if you really need the tax advantages of an ISA. Thanks to the personal savings allowance, basic-rate tax payers can earn £1,000 per year in savings interest without paying tax on it – as a result, around 95% of people in the UK don't have to pay tax on their savings.
Want to stick with Tesco? How to get the higher rate
If you'd prefer to stay with Tesco Bank, here's what you need to do to get the new rate:
- Open a new Tesco Bank ISA online.
- Call Tesco Bank on 0345 678 5678 to arrange an ISA transfer.
- Tell it what date you want the transfer to happen.
- Request that the new bonus rate be backdated to the point when the new cash ISA was opened.
But be warned: already in the last month, Tesco Bank has increased the bonus rate on its easy-access ISA from 1.07% to 1.11%, and now again to 1.2% – so you'll need to keep a close eye on it to make sure you're getting its best rate.
A similar situation was seen with Tesco Bank's Internet Saver account, which recently only had its bonus rate increased. In the same way as the Tesco Bank ISA, Internet Saver customers can also benefit from any new bonus rates by opening a new account and transferring funds over.
What does Tesco Bank say?
When we asked Tesco Bank why it had taken this approach to setting its rates, it told us it aimed to "strike a fair balance between competitive rates and flexibility".
It added that it wasn't the only provider to offer a combination of underlying rate and bonus rate, and that it "makes it easy for customers to move their money to other Tesco Bank savings products and rates without penalty".