The supermarket’s debut current account will appeal to loyal shoppers as well as those looking to earn a decent return on their cash.
Tesco Bank has launched its first current account.
The new deal will earn customers Clubcard points on all debit card purchases as well as in-credit interest on balances up to £3,000.
But has Tesco’s new offering got enough of the right ingredients to compete with existing current account deals?
The benefits
The Tesco Bank Current Account is geared towards loyal shoppers.
Account holders will be able to earn Clubcard points on all their debit card spending at a rate of one point for every £4 spent at Tesco or one point for every £8 spent elsewhere (with a few exceptions).
Clubcard points can be used to get money off vouchers or can be boosted for higher value rewards on things like cinema trips and days out. For other ways to boost your balance read How to boost your Tesco Clubcard points.
Tesco’s Clubcard loyalty scheme has around 17 million members, but it’s not just this group the new account will appeal to.
Savers fed up with rock-bottom interest rates may be tempted by the offer of 3% in-credit interest on balances up to £3,000.
[SPOTLIGHT]Unlike other accounts you won’t need to transfer/set up a minimum number of direct debits or not receive paper statements to get these benefits and though you can make it your main account, it’s not a requirement.
Fees and charges
However, one downside to the account is the lack of an interest-free buffer to protect customers should they stray into the red.
Authorised overdrafts will be charged at 18.9% EAR, while people using an unauthorised overdraft are also charged a £5 flat transaction fee for payments made by the bank or on payments that bounce. The maximum you could be charged on transaction fees is £50.
Other charges include a 2.75% fee for using your debit card abroad.
And you'll need to deposit at least £750 each month to get the account for free, otherwise you'll be charged a £5 fee each month.
Who can get it?
The account is available to residents aged 18 or over in England, Wales and Scotland.
Individuals can open one single account and/or one joint account.
Customers will be able to manage their account online and over the phone 24/7 via a UK-based call centre.
Over 300 Tesco stores will also be able to take deposits and make withdrawals with facilities open until 8pm.
How Tesco compares
Tesco is the first supermarket bank to directly challenge traditional banks and building societies with an offer of in-credit interest with its current account.
Santander's 123 Current Account also offers a rate of 3% but on much larger balances of £3,000 up to £20,000. For smaller amounts the account will pay 1% on balances from £1,000 or 2% on balances from £2,000. It also offers up to 3% cashback on various household bills. To benefit from interest you need to credit the account with £500 a month and pay a £2 monthly fee.
The Lloyds Bank Club Lloyds Account pays a slightly higher 4% but on balances between £4,000 and £5,000. For smaller balances a rate of 1% is paid from £1 or 2% from £2,000. However, you need to pay at least two different direct debits from the account to qualify for interest. Also the account costs £5 a month unless you fund it with £1,500 a month.
But it's Nationwide and TSB who offer the market leading rate of 5%. Nationwide's Flex Direct account offers 5% interest on balances up to £2,500 for 12 months, which you can get as long as you deposit £1,000 per month. It also comes with a 12-month fee-free overdraft. While TSB offers a rate of 5% indefinitely on smaller balances up to £2,000, but only requires £500 to be deposited each month and you to agree to not receive paper statements.
As you can see Tesco's account does not fully blow the competition out of the water in terms of interest rate but it's a solid offering that may prove to have the competitive edge when combined with the chance to boost points on its loyalty scheme.
More on current accounts:
The best debit cards to use on your travels
M&S Bank launches fee-free current account
How to switch your current account in 7 days