Focus on: Large bank balance? Now you can earn 4%

Savers looking for the highest returns on their cash may never have considered simply holding it in a current account. But, in some cases, this could actually prove the best option. We take a look at some improvements to Lloyds TSB’s Vantage, and assess whether the bank account with the Vantage facility could make sense for you.

What’s the deal?

Lloyds TSB has introduced a brand new tier to its current accounts with Vantage, which pays a whopping 4.00% AER (Annual Equivalent Rate) on credit balances of up to £6,000. The new rate will only kick in when your balance hits £5,000 but will apply to the entire balance. This rate is promised until October 31 2013, whether you are a new or an existing customer.

Vantage is a facility, rather than an account itself, that can be applied to all of Lloyds TSB’s current accounts free of charge. However, to qualify you will need to pay in at least £1,000 every calendar month, set up a minimum of two direct debits on the account and always remains in credit.

The new 4.00% rate comes in addition to three existing interest tiers. These are 1.50% on balances of between £1 and £1,000; 2.00% on balances of between £1,000 and £3,000 and 3.00% on balances of between £3,000 and £5,000. In all cases, you will be paid the respective rate of interest on the whole balance.

The newly-introduced 4.00% tier means that, providing you meet the above criteria, if you maintain a balance of £6,000 in your account over the course of a year, you will earn £235.80 in interest before tax is deducted.

Jatin Patel, director of current accounts for Lloyds TSB, said: “Adding Vantage is a smart way for customers to earn more from their current account, and the introduction of our new 4.00% AER credit interest rate on balances above £5,000 will give customers the chance to make their money work even harder for them over the next year.”


Any catches?

The main catch is that if your balance tips over the £6,000 mark, you will not earn any interest at all on this slice of cash. So, with your monthly salary going into the account every month, operating Vantage to its full effect could be something of a balancing act.

Also, while new customers will be able to apply for the 4.00% tier online, if you already bank with Lloyds you will need to either telephone or visit a branch in person to make your application. And, in either case, it will need to be done by October 31 this year.

You will also need to remain in credit at all times to be paid interest at any tier. If you do venture into an agreed overdraft, you will incur a monthly fee of £5 and, of course, not earn any interest at all. That said, this fee will not apply where the account comes with an interest and fee-free limit. The Gold, Platinum and Premier accounts all currently offer this, and the Classic and Silver accounts will do so from October 2.

What’s the verdict?

Providing you can tick all the required boxes that apply to the Lloyds current account with Vantage - and your savings balance is around the £5,000 to £6,000 mark, you will be onto a winner with the introduction of this new 4.00% tier from Lloyds - as even the most handsome easy access savings accounts won't pay that rate of interest.

The current market leading account easy access account for example, is from ING Direct and pays 2.80% on a minimum investment of £1 (although this incorporates a hefty bonus of 2.26% for the first 12 months).

However, if you're lucky enough to be concerned, the maximum investment on the ING account is £1m. But, with the Lloyds Vantage, if your balance tips over the £6,000 mark your 4.00% returns on that slice of cash will suddenly plummet to zero - notably not down to the lower tier of 3.00% (paid on balances of between £3,000 and £5,000).

So, with the Lloyds account with Vantage, not only will you need to be financially disciplined not to go overdrawn, you will need to maintain a maximum balance as well if you want to take full advantage of its features.

Top tip!

If, like many people, your current account balance is not so consistently fat, try cashing in on what you spend rather than what you have.

Santander’s 123 current account for example, pays cashback of 1.00% on any spend on water and council tax bills that come out of the account. This rises to 2.00% of spend on electricity and gas bills, and 3.00% of spend on mobile, home phone, broadband and paid-for TV packages.

And if you should have a reasonable credit balance, you will benefit again. The account pays an AER of 1.00% on credit balances £1,000 or more (on the entire balance). If you are £2,000 or more in credit, you will earn interest of 2.00%. And if your balance reaches £3,000 or more, interest of 3.00% will kick in.

Again however, this is still a juggling act, if your balance falls below £1,000 on any day of the months, you will earn no interest at all on the entire balance for that day. And, on the other end of the spectrum, if your balance exceeds £20,000, interest earned will not increase from the maximum 3%.

Follow Laura on Twitter at @LauraHoward77

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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