The bank is set to turn up the heat in the current account market with the launch of Plus.
TSB has announced it will launch a new fee-free current account at the end of March which will be called Plus.
This will be the first new bank account to come from TSB since it split from Lloyds last year and returned to the high street as an independent brand.
The new offering is set to shake up the current account market as Plus will offer 5% interest on credit balances – which matches the rate on offer from Nationwide's FlexDirect, which is presently leading the market.
TSB Plus
Plus will be available to new and existing customers from 31st March 2014.
It will offer 5% AER on balances up to £2,000 – making it the joint market-leading account for credit interest along with Nationwide’s Flex Direct, which offers 5% on balances up to £2,500.
However, the Flex Direct only offers 5% for 12 months (reverting to 1% thereafter). TSB’s account will offer 5% interest indefinitely.
A maximum of two accounts per person will be permitted, but there is no caveat saying the second account must be in a joint name. So if you wanted to you could stash up to £4,000 across two accounts that would benefit from the 5% rate.
The account can be managed in a branch, online or over the phone.
But in order to get the 5% credit interest, you will need to deposit a minimum of £500 each month as well as register for internet banking and opt for paperless statements.
Minimum monthly funding requirements as well as ditching paper bills is now common on current accounts which offer credit interest.
You can use the seven-day switch service to move your main account over to TSB – though this is not mandatory to get the main benefit of 5% interest. But if you do you will also get a three-month interest- and fee-free overdraft.
Plus will join TSB's existing range of current accounts and mirror the charges found on the also fee-free TSB Classic Account.
Planned and unplanned overdrafts will attract 19.94% interest as well as fees like the £6 a month charge for using a planned overdraft, and a daily fee of up to £10 for using an unplanned overdraft (max eight daily fees in a month).
Overseas charges are also the same as the TSB Classic Account. There is a non-sterling transaction fee of 2.99% for cash withdrawals as well as a non-sterling cash fee of 1.5% (minimum £1.50) for cash transactions like ATM withdrawals. While card purchases attract the non-sterling transaction fee of 2.99% as well as a £1 non-sterling purchase fee.
How Plus compares
TSB’s Plus account joins a range of other current accounts which offer interest on in-credit balances.
The closest competitor to the TSB Plus account, as mentioned above, is the Nationwide FlexDirect account with 5% on balances up to £2,500 for a year. This is £500 more than what TSB is willing to offer interest on in one account, though as suggested before you could open two accounts with TSB to expand this limit. Nationwide won't allow you to do this unless the second account is in a joint name. You will also need to fund the FlexDirect account with at least £1,000 a month in order to earn interest (£500 more than TSB requires). That said FlexDirect also comes with other benefits like a 12-month interest free overdraft and access to exclusive Nationwide offers.
The next best rate on offer come from Clydesdale Bank and Yorkshire Bank. The Current Account Direct on offer with both banks pays 4% on balances up to £3,000 as long as you credit the account with £1,000 a month and register for telephone and/or internet banking services to operate your account. But again this rate is temporary and will last until 31st March 2015, after which 2% will be paid instead.
With the Classic Account on offer with Lloyds Bank and Bank of Scotland you can add Vantage for free which offers an ongoing rate of 3% but only on balances from £3,000 up to £5,000. Smaller balances from £1 receive a rate of 1.50% and balances from £1,000 receive a rate of 2%. You will need to credit the account with £1,000 in order to be eligible for any interest. TSB also offers a version of this feature called Enhance which can be added to its Classic Account.
However, Santander’s 123 Current Account is the only account on the market that is willing to pay a decent rate on larger balances. It pays 3% on balances from £3,000 up to £20,000. For smaller pots the account will pay 1% on balances from £1,000 or 2% on balances from £2,000. You will need to credit the account with £500 a month to benefit from interest and pay a £2 monthly fee. You can make the latter back by earning cashback on certain direct debit payments from your account.
Using your current account as a savings account
Current accounts have become a lifeline for savers in search of the best returns as the rates on traditional savings accounts have nosedived.
This is thanks to a record-low base rate that has been around since March 2009 and the knock-on effect of the Government’s Funding for Lending Scheme, which allowed banks and building societies to borrow cheaply to encourage lending, but as a result meant they became less reliant on savers’ deposits.
The top instant access rate, for example, is a lowly 1.50% on offer from Britannia, and that isn’t even a true instant access account as it only allows four penalty-free withdrawals a year.
But while savings have fizzled out current accounts have experienced a revival, thanks in part to the introduction of the Current Account Switch Service. Banks and building societies have signed up to the scheme, which includes a pledge to switch over your current account within seven days.
So now it’s easier to ditch and switch, banks and building societies are actively trying to keep and attract customers and are offering enticing offers on current accounts including in-credit interest.
So current accounts are doubling up as savings accounts. And with rates as high as 5% from Nationwide and now TSB these are currently surpassing the top rates available even on a five-year fixed rate bond, where the best rate you can find right now is just 3.25%.
More on current accounts:
How to switch your current account in 7 days
M&S Bank to launch free current account this summer
Why some current accounts beat top savings accounts
Switch your current account to Post Office and get £100
Ffrees unveils current accounts that help you save while you spend
Co-operative Bank and Nationwide launch new cash switching offers