Warning: is your current account interest rate about to be cut?
Relentless rate cuts on savings products saw many savers turn to high interest current accounts last year.
In total, there were 2,053 interest rate cuts to savings products in 2016 and only 235 rises, according to Moneyfacts.
However, current accounts were not left unscathed by the rate cuts.
Notably, Santander slashed the rate on its hugely popular 123 account from 3% to 1.5% in November.
As we enter 2017, a handful of other current account products are set to cut in-credit interest or reward offerings.
The changes you need to be aware of:
TSB Classic Plus Account: From 4 January, the interest rate will drop from 5% on balances of between £1 and £2,000 to just 3% on balances between £1 to £1,500. This means the maximum interest you’ll gain will be £45 on the maximum balance of £1,500.
Lloyds Club Lloyds Account: From 8 January, the provider will do away with a tiered interest rate of between 1% and 4% on balances of up to £5,000 and instead introduce a flat 2% interest rate on balances between £1 and £5,000. On the maximum £5,000 balance, you’ll earn just £100 of interest.
Halifax Reward Current Account: From 1 February, Halifax is cutting its monthly reward payment from £5 to £3. This means as long as you meet the minimum pay in criteria (£750 per month), the maximum amount you’ll receive will be £36 a year.
Rachel Springall, finance expert at Moneyfacts, said: “Clearly 2016 was a catastrophic year for savers as a combination of government initiatives for borrowers and a cut to the bank base rate hurtled cash savings rates to record lows, with the number of cuts outweighing the rises every single month.
“It’s becoming increasingly difficult for savers to get a decent return and it will be brutal for those who rely on their savings as a source of income. If providers continue to lack the desire for savers funds, then savings rates are only going to fall further.”
Other options for savers
The Nationwide FlexDirect current account currently pays 5% on balances of up to £2,500 for the first 12 months before reverting to 1% gross per annum. There are currently no plans to alter this offering.
Santander cut the interest rate on its popular 123 current account from 3% (variable) to a flat 1.50% on any balance up to £20,000 from 1 November 2016. This was a massive blow to its four million customers but despite the cut, it could still be an option for those with slightly higher balances. See YourMoney.com’s Where next for savers? to view three comparison tables to help you decide whether it may be the right account for you.
Tesco Bank’s current account also pays an attractive 3% (variable) on balances of up to £3,000. As yet, no changes have been announced.
In the Autumn Statement last year, the government announced a new NS&I bond will launch in spring 2017, expecting to pay 2.2% for a three-year fixed term on a maximum £3,000 deposit.
Springall said this should give savers something to look forward to as it will be market-leading, but because of the investment limit and time-period, “it won’t be ideal for everyone”.