The upturn in activity in the current account market in 2014 shows no signs of fizzling out with Lloyds becoming the latest high street name to revamp its bank account offer from Monday (31 March).
Because bank account customers can and will now switch more easily, providers have realised they need to up their game to remain competitive and maintain market share.
No doubt they are equally mindful of the potential threat from Tesco Bank and Virgin Money with their new bank account launches surely just a few months away.
This increased desire to win new accounts has already prompted M&S Bank and TSB to table attractive new current account options in recent weeks and I’m confident that this latest move from Lloyds won’t be the last we see in before summer’s here.
Lloyds Bank has badged its new account as ‘Club Lloyds’ and looks to reward customers who use it as their principal account to manage their day to day banking.
Looking under the bonnet of the Club account, the interest paid on credit balances looks like the big juicy bait that Lloyds is hoping will hook most customers, with a headline 4% AER payable on balances over £4,000 and up to a maximum £5,000. The rates for smaller balances are 1% from £1 to £1,999 and 2% from £2,000 to £3,999.
One big improvement with ‘Club Lloyds’ compared with the previous Vantage account add on, is that you don’t have to remain in the black for the whole month to qualify for your credit interest payment – you’ll still get any payment due even if you go overdrawn for a few days.
For people with bigger credit balances the 123 account from Santander paying 3% from £3,000 to £20,000 remains the stand out deal.
Other benefits you’re entitled to with Club Lloyds include access to a monthly saver account paying 4% and allowing you to pay in up to £400 per month and with the chance to receive interest on a monthly basis this looks a decent extra.
For customers taking out a Lloyds Bank mortgage there is a Club discount of 0.2% on the interest rate – It’s a decent cut but you’d still be wise to get an independent mortgage broker to check that the discounted deal represents a good rate when compared against the whole market best buy deals.
There’s also a free ‘lifestyle option’ where you can choose from one of: six free cinema tickets per year, an annual magazine subscription or a restaurant discount card – all nice to haves, but certainly not the basis on which to choose your bank account.
When it comes to overdrafts I’m pleased to see the introduction of a £100 interest and fee free buffer but at the same time disappointed that the high overdraft interest rate of 19.94% EAR and £6 monthly usage fee remain. If you’re not somebody that keeps much of a credit balances and are regularly overdrawn in excess of £100 there are cheaper bank account options to choose from.
Similarly if you use your debit card abroad you’ll pay a 2.99% foreign transaction levy plus a £1 charge for each card purchase made outside the UK, so if you’re a frequent traveller overseas this may not be best account for you.
To qualify for this account you must pay in a minimum of £1500 per month (3 times that required by TSB) and have at least 2 monthly direct debits. If you don’t want to meet these requirements you can still open a Club Account but it’ll cost you £5 per month – this significantly negates the financial benefits and is no doubt designed to discourage people from opening an account purely as an additional savings vehicle.
This account has its good and ‘could do better’ elements depending on how you run your day to day banking.
As always, make sure you understand how the different components will or won’t work for you before you rush to sign on the dotted line.