Time to review your current account

More than three-and-a-half million Lloyds TSB customers will soon receive letters telling them how the sale of 632 Lloyds branches...

16:05 10 December 2012

More than three-and-a-half million Lloyds TSB customers will soon receive letters telling them how the sale of 632 Lloyds branches to the Co-operative will affect their current account banking arrangements.

 

These customers will be moved from Lloyds TSB's banking licence to Lloyds TSB Scotland's banking licence. Once this has happened, Lloyds TSB Scotland will be re-named TSB Bank.

 

While all account numbers and sort codes will stay the same, those customers who are affected will be sent new TSB-branded debit and credit cards next year. They will only be able to use TSB branches for banking and not Lloyds or C&G branches. TSB customers will be transferred to the Co-op by the end of next year.

 

You don't HAVE to accept the new bank though and can stick with Lloyds if you want to. But before you decide, it's a good idea to review all the various current accounts on offer - as you may find the market is much improved since the last time you looked.

 

Best current accounts if you are usually in credit

 

For example, Nationwide, Britain's biggest building society, has just launched its first new current account in 25 years, aimed specifically at those who want to earn interest while they are in credit.

 

The FlexDirect account will pay credit interest at an annual equivalent rate (AER) of 2.00% fixed for the first year on balances up to £2,500. After the first year, the account pays 1.00% AER variable. You don't earn any interest on balances over £2,500.
 

Eligible customers are offered a three month fee free overdraft, after which arranged overdrafts are charged at £1 per day, with a maximum charge of £20 per month, so this account won't be suitable for anyone who spends most of their time in the red. Unauthorised overdraft charges are even steeper, at £5 per day, capped at £60 per month.

 

You must pay £1,000 a month into this account. If you pay in less than this any month, you'll be hit with a £5 'under-funding charge', which means if your income fluctuates you'll probably be better off with an alternative account.

If you bank with Lloyds TSB then you can boost the amount of interest you earn on your current account savings by adding 'Vantage' to your current account.

 

However, there are several catches, so you need to read the small print carefully.

 

First, you will only be eligible to add Vantage if you pay in at least £1,000 a month to your account, and stay in credit. Interest rates are also tiered, so the more you hold, the better the rate of interest you will receive.

 

Balances of more than £1,000 and up to £3,000 earning 2.00% AER while balances between £1 and £1,000 earn 1.50% AER.

 

Meanwhile, savings between £3,000 and up to £5,000 will earn 3.00% AER, with no interest at all paid on amounts above £5,000.

 

You can add Vantage to Lloyds TSB Classic, Silver, Gold, Platinum and Premier accounts via branch, PhoneBank or internet banking, if you're registered.

 

Santander's 123 current account also pays savers interest, but you need to agree to pay in at least £500 a month, set up two direct debits and maintain a minimum balance of £1,000 to qualify.

 

If you are able to meet this criteria, then with a rate of 3.00% paid on balances from between £3,000 up to £20,000, returns are again higher than any easy access savings account currently on the market.

 

Balances between £2,000 and £3,000 earn a lower rate of 2.00% AER, while if you have between £1,000 and £2,000 in your account, you earn 1.00% AER. You won't receive any interest on balances below £1,000.

 

Another advantage of this account is that it also provides cashback, so you earn 1% back on water, council tax and Santander mortgage payments of £1,000 or less, 2% on gas and electricity bills and 3% on mobile, home phone, broadband and paid for TV packages.

 

The biggest downside of the account is that it has a £2 monthly fee, so you will either need to keep a large balance in it to maximise the interest you ear, or make sure you spend enough on the bills outlined above to earn sufficient cashback to cover the fee.

 

Best current accounts if you're overdrawn

 

If you tend to be overdrawn most of the month, a current account which pays interest when you're in credit won't be much use.

 

Instead, you should look for a current account with low charges when you are in the red. First Direct's 1st current account offers 0% on overdrafts up to £250, but you need to pay in £1,500 a month.  If you go beyond £250, an overdraft rate of 15.9% APR will apply.

 

Santander's Everyday Current Account is also worth a look, as switchers to the account can also benefit from a 0% fee-free arranged overdraft for the first four months. After this, your overdraft will be charged at £1 a day, capped at 20 days for each statement month.

 

Alternatively, The Co-op's Current Account Plus provides a temporary fee-free and interest-free overdraft of up to £1,000 for the first three months of switching your current account over, and offers a longer-term £200 fee-free buffer. Interest on agreed overdrafts is charged at 15.9% AER.

 

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.