Tesco Bank, the supermarket giant’s banking arm, today launched its first current account. And on the face of it, it’s a decent offer.
The account offers 3% interest on balances up to £3,000, putting it among the best-buy accounts from the competition. Only Lloyds, Nationwide and TSB offer higher rates of interest.
The Tesco account will be free to customers who deposit at least £750 a month, but will cost £5 a month if you pay in less.
It comes with a Visa debit card, which also acts as a ‘Clubcard’ loyalty card. Customers will be able to collect points at a rate of one point per £4 spent in Tesco, and one point per £8 spent elsewhere. Check the small-print, though, as “exclusions apply”.
The interest rate for arranged overdrafts will be 18.9%. Unauthorised overdrafts and rejected payments will incur fees of £5 per transaction.
Customers will be able to pay in money in 300 Tesco stores, and will be able to contact the bank 24 hours a day via its UK-based call centres.
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Taken a while
Pundits have been speculating for years about when Tesco’s current account might be launched, so we’re pleased that the account has finally arrived.
In fact, the timing works well for Tesco as the company desperately needs some good news. Tesco’s most recent like-for-like sales figures were terrible, showing a 3.8% drop in the last quarter, and the company faces serious challenges.
These include aggressive competition from the likes of Aldi and Lidl, as well the declining popularity of large out-of-town hypermarkets.
Tesco Bank has already built up a base of six million customers by offering loans, mortgages and credit cards, and is the latest in a line of ‘challenger’ banks that aim to take on the traditional institutions.
But, in the end, Tesco is still essentially a traditional bank. Writing in this week’s MoneyWeek magazine, Matthew Lynn doesn’t believe this model represents the future of banking.
He describes banking as a ‘declining industry’, and says that what will really shake up the banking system is new online players such as Zopa and the peer-to-peer lenders.
(Sign up for a 4-week free trial for MoneyWeek and you can read Matthew’s article in our online archive.)
Coincidentally, Bengt Saelensminde, who writes the free Right Side newsletter, believes Tesco is capable of becoming a ‘dotcom giant’ as it moves more of its retail business online. It remains to be seen if banking can be part of that ‘dotcom’ future.