Is it time to switch current accounts?
Interests rates on high-paying current accounts are coming under pressure. Sarah Moore looks at the options for savers.
Lloyds Bank and TSB will cut the interest rate on their highest-paying current accounts from January, blaming "changing market conditions" for the decision (in other words, the Bank of England's recent interest-rate cut from 0.5% to 0.25%). This will affect millions of savers, many of whom probably switched to these accounts because they pay much higher interest rates than traditional savings accounts.
Lloyds' Club Lloyds account, which also offers perks such as magazine subscriptions and cinema tickets, now pays 4% on balances between £4,000 and £5,000. From January 2017 it will pay just 2% on balances up to £5,000, meaning the maximum amount you can earn in interest per year will be reduced from £200 to £100. Similarly, TSB will slash the interest on its Classic Plus account from 5% on balances up to £2,000 to 3% on balances up to £1,500.
If you're looking to switch accounts to earn the highest interest rate possible, the best option will vary depending on the amount of money you want to hold in the account. For smaller amounts, Nationwide's FlexDirect account pays 5% on balances up to £2,500 for 12 months and 1% thereafter.
For balances of up to £5,000, the Club Lloyds account may still be a good option, as long as you are able to avoid monthly fees by depositing £1,500 per month. If you're looking to deposit a significant amount of cash, Santander's 123 Current Account will pay 1.5% on balances between £3,000 and £20,000 from 1 November 2016. You could also look into spreading balances over different accounts to avoid the caps on amounts that can earn interest, or look for accounts that offer switching bonuses.