Scottish Daily Mail

Hang on to your current account for best returns

- sy.morris@dailymail.co.uk By Sylvia Morris

BANKS have turned their guns on hundreds of thousands of current account holders in the latest rate-cutting bloodbath.

The first shot comes in less than two weeks’ time, when Santander halves the rate on its popular 123 account.

Halifax, TSB and Lloyds have all said they’ll be joining it early next year. But even after the cuts, many current accounts will still offer better value than most savings deals — so don’t ditch them just yet.

Rates on dedicated savings accounts have been hacked back so dramatical­ly that in August, savers earned £1.9 billion less interest than in the same month last year — even though their balances had risen by nearly £72 billion.

Savers faced with a spiral of cuts to as little as 0.01 pc on easy-access accounts have left money in current accounts to earn as much as 5 pc.

Just last year, the number of Santander 123 accounts jumped by 185,000 — or 500 every day for the year — by those lured in by its 3 pc rate on up to £20,000.

Halifax pulled in an extra 109,000 Reward account customers by offering £5 a month.

TSB, which pays 5pc interest on £2,000, reeled in an extra 13,835 customers.

But now the banks can afford to cut these rates, as they know customers will still be better off than if they switched to a savings account. From November 1, the Santander 123 rate will more than halve for some customers. If you have £10,000 in the account, you’ll be £150 worse off a year — a drop of 63 pc.

On £20,000, your return will be 56pc lower at £240, down from the current £540.

The bank currently pays 3 pc on balances up to £20,000, as long as you have at least £3,000 in your account. For balances up to £2,000, the rate is 1 pc, and 2 pc if your balance is between £2,000 and £2,999.99.

But from next month, everyone earns 1.5 pc.

That means a drop in interest to £150 from £300 on your £10,000. After you’ve paid the £60 annual charge — at £5 a month — you end up with £90 a year, down from £240.

That £90 is the same as earning 0.9 pc in an easy-access account.

You can do only a whisker better even with the top 1pc paid by a handful of providers such as Coventry BS and Kent Reliance (see table above).

If you have the full £20,000 with Santander, you should stick with it, even though your interest will halve to £300 a year from the current £600. Take off the £60 annual fee and you end up with £240 — equivalent to 1.2 pc.

If you have less than £1,000 in the account, you’ll earn 1.5 pc, up from 1pc. But all this means is that it will cost you only £45 to run the account, rather than the £50 now, due to the annual fee. However, you can earn up to 3 pc cashback on household bills. You need £4,000 in the account to cover the £5 monthly fee. Next up is TSB with a cut from 5 pc to 3 pc from January 4 on its Classic Plus account. And it will pay interest on only the first £1,500, rather than £2,000. On £2,000, your interest will drop to £45 from £100. The 3pc is still a competitiv­e return on £1,500, but move your other £500 to a better deal. On January 8, Lloyds Bank cuts its Lloyds Club rate to 2pc. Those with the maximum interest-earning £5,000 will see £100 a year, down from the current £200. At the moment, the bank pays 1 pc if you have between £1,000 and £2,000 in your account, 2 pc if your balance is £2,000 to £3,999.99 and 4pc on more. Then on February 1, the Halifax Reward account will take a hit when the monthly payout falls from £5 to £3 a month.

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