Focus on: Earn 4.00% on savings AND current account

Lloyds Bank is an appealing option for those who stay in the black, as both its current account and linked savings account pay eye-catching returns of 4.00%.

Last year’s introduction of the 7-day switch service for current accounts opened the floodgates for great new deals targeted at savers. One of the most recent on the block is Lloyds Bank’s Club account and we've rounded up the pros and cons...

What’s the deal?

The Club Lloyds current account was launched with some fanfare on March 31 this year and pays tiered rates of interest (up to a 4.00% ceiling) to accountholders who stay in credit. So what are the numbers?

Balances between £1 and £2,000 will earn 1.00% AER, which rises to 2.00% on balances between £2,000 and £4,000. But if you hold between £4,000 and £5,000 in the Club account, you'll benefit most as that's when interest hits the top rate of 4.00%. Whatever interest tier  you fall in to, it will apply to the whole balance.

So, a basic rate taxpayer who holds a  balance of £5,000 in the Club account for 12 months on the trot would earn £160 interest over the course of a year, once tax has been deducted.

To add to this, Club account holders will get access to a 12-month regular saver account which also pays 4.00%. You can pay in up to £400 a month and, even though the rate’s fixed, you’ll still retain access to your cash at all times.

And if you also hold a mortgage with the Lloyds, you'll get a 0.20% discount on your rate.

Club Lloyds also comes with a range of ‘lifestyle benefits’ and you'll have a choice of six Vue cinema tickets a year, an annual magazine subscription or access to discounts at over 6,000 restaurants.

The account carries a free £100 overdraft buffer. And if you exceed this (or any larger overdraft you've arranged with the bank), you will have a ‘grace period’ until 3.30pm the following day to get your balance in order before being charged.

To qualify for Club Lloyds, you must use the account as your main current account which entails paying in £1,500 a month and setting up two outgoing direct debits.

If you can’t meet these criteria, you can still open a Club Lloyds current account but you'll be charged a £5 monthly fee.

The account can be opened online, in branches or by telephone.

Who’s it good for?

The Club account will most suit customers who stay in the black to the tune of between £4,000 and £5,000. Those with balances either side of this amount could be better off with a current account deal from a different provider, as we'll go on to explain.

The account is also a winner if you had plans to start saving regularly. At a fixed 4.00%, Lloyds’ regular savings account is one of the best on the market, especially with its generous £400 maximum payment. (Its nearest rival is First Direct which offers a rate of 6.00% to its 1st account on payments up to £300 a month.)

Any catches?

The minimum funding of £1,500 a month is quite steep, equating to an annual salary of £23,000. And if you are at risk of slipping into the red, the account is expensive. Once you get past the £100 courtesy buffer, even arranged overdrafts are charged at 19.94% and there's an additional £6 monthly 'usage fee' on top.  

What's the verdict?

The Club account is a great in-credit deal - especially if your account balance is at the optimum level to make it work and you will make use of the other benefits. But if you don’t carry between £4,000 and £5,000 in your account, there could better options.

If your balance is around £2,000 for example, TSB’s Plus account pays a bigger ongoing rate of 5.00% and requires a lower £500 each month to qualify.  Nationwide Building Society’s FlexDirect also pays 5.00%, but on balances up to £2,500. After 12 months however, the rate falls to 1.00%.

If your balance is higher than £5,000, Santander’s 123 account could be more up your street as it pays 3.00% on balances between £3,000 and £20,000. In addition you’ll get cashback at a rate of 3.00% on spend on mobile, home phone, broadband and paid-for TV packages; 2.00% on energy bills, and 1.00% on any Santander mortgage payments (up to £1,000 a month). It also only requires £500 a month funding but does charge a £2 monthly fee.

The 0.20% discount on Lloyds mortgages that’s offered as a Club Lloyds member, could be useful but always shop around. Even with the discount, it might not turn out to be the best deal.

And don’t be tempted by the freebies if you don’t think you’ll use them. After all, at a value of around £70 a year, these are all part of the package.

Top tip!

If you’ve got a Lloyds Vantage account already, the rate of interest you earn will be cut significantly from July. And don’t expect to be automatically transferred to Club Lloyds to boost returns again. You’ll have to ask.

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.

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