WORLD - TOURISM
Interest halved on 123 product Lloyds carries out review. Other lenders poised to act.
NEW MIDDLE CLASSES TAKE TO DUBAI SANTANDER LEADS HIGH STREET BANKS IN SLASHING RATE ON CURRENT ACCOUNTI
Santander UK is to halve the interest rate on one of its most popular accounts in a move other banks are expected to follow as they adjust to ultra-low rates and economic uncertainty triggered by the Brexit vote. The bank has signed up more than 3m customers to its 123 current account, luring them with a comparatively high rate of 3 per cent. It blamed its decision to slash the maximum payout on the account to 1.5 per cent on “interest rates staying lower for longer”. Lloyds Banking Group followed with a statement saying it would “review” its current accounts, which include its “Club” product that offers up to 4 per cent interest. Santander UK, which considers itself a “challenger” to the largest high street lenders, has been one of the most aggressive banks in pursuing current accounts in a bid to attract customers. It has attracted £1bn a month this year to its current accounts, which have an overall balance of £61bn. The creation of the 123 account in 2012 was a pivotal moment for Santander UK, which arrived on the high street two years earlier after buying Abbey National, Alliance & Leicester and part of Bradford & Bingley. It is still one of the only UK current accounts to charge a monthly fee in return for benefits, such as cash back on bill payments, in a move to build customer relationships. The bank’s decision to cut its rate comes after the Bank of England lowered benchmark borrowing costs to a record low of 0.25 per cent in an attempt to fend off economic slowdown following the vote to leave the EU. Banks are still enjoying access to cheap funds through the government’s Funding for Lending Scheme and a new £100bn pot launched this month. Analysts said some are poised to rein in business loans and are forecasting lower mortgage growth after the vote, reducing their need to chase depositors. “The banks are looking at their future loan book and, post-Brexit, they can see a decline in new mortgage lending so they don’t need as many deposits,” said KPMG partner Warren Mead. Nearly three-quarters of current accounts pay a zero rate of interest, according to Moneyfacts, which tracks bank products. The average easy-access savings account pays 0.53 per cent, while Royal Bank of Scotland and NatWest have said they may impose negative rates on business clients, in effect charging them to put money on deposit. Santander’s 123 account has been a popular choice for high earners, as it pays 3 per cent interest on balances between £3,000 and £20,000, giving them £540 a year after fees. From November, that will fall to 1.5 per cent. Lloyds’ Club Lloyds current account has also been popular with the affluent, paying 4 per cent on balances of £4,000 to £5,000. Lloyds did not disclose when it would change, sayingbecause of “market conditions“it would be “reviewing our accounts in due course”.