TSB, Lloyds and Halifax to cut current account rates

Just two months after Santander announced it was reducing the amount of interest it pays on its 123 current account, TSB, Lloyds and Halifax have revealed they are following suit.

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With savings rates at historically low levels, more and more of us have been turning to current accounts in an attempt to seek out better returns.

But from early next year, three of the top-paying current accounts are to see their rates slashed.

Here’s what’s happening:

TSB Classic Plus current account

What the account pays currently: The TSB Classic Plus current account pays 5.00% AER (variable) on balances of up to £2,000.

What the account will pay next year: From January 4, the account will pay not much more than half that at 3.00% AER (variable) and only on balances of up to £1,500.

You can also earn 5% cashback on your first £100 of contactless or Apple Pay payments every month until September 30, 2017 (or December 31, 2016 if you opened your account before June this year).

You’ll need to pay in £500 a month and register for internet banking, paperless statements and paperless correspondence to be eligible for this account.

Lloyds Bank Club Lloyds current account

What the account pays currently: The Club Lloyds account pays a tiered rate of interest, so you’ll earn:

-4.00% AER (variable) on balances between £4,000 and £5,000
-2.00% AER (variable) on balances between £2,000 and £3,999.99
-1.00% on balances between £1 and £1,999.99.

What the account will pay next year: From January 8, the tiered structure will be replaced with a flat interest rate of 2.00% AER (variable) on balances up to £5,000.

The account has a £5 monthly fee if you don’t pay in £1,500 or more each month, but this will be cut to £3 in January.

You’ll also need to have at least two direct debits on the account.

Halifax Reward current account

What the account pays currently: Halifax’s Reward current account pays a £5 reward every month you pay in £750 or more, pay out two direct debits and stay in credit.

What the account will pay next year: From February, the reward will be reduced to £3 a month.

If you have the Ultimate Reward account, you currently pay £15 a month for the account, or £10 a month if you pay in £750 or more, pay out two direct debits and stay in credit.

The account fee will remain the same next year, but if you meet the above conditions, it’ll be reduced to £12 rather than £10.

Santander to cut rates this November

Back in August, Santander announced it would be halving the amount of interest customers can earn on its 123 current account from November 1 to 1.50% AER (variable) on balances up to £20,000.

This will replace the existing tiered rate structure, where you can earn 1.00% AER (variable) on balances of between £1,000 and £1,999.99, 2.00% AER (variable) on balances of between £2,000 and £2,999.99 and 3.00% AER (variable) on balances of between £3,000 and £20,000.

You’ll still be able to earn between 1.00% and 3.00% cashback on some of your household bills.

To qualify, you must pay in £500 or more a month and have at least two active direct debits on the account, as well as pay a £5 monthly fee.

What else is available?

All of this makes pretty depressing reading, and if you’re affected by these changes, you’ll want to sit down and review your options.

However, keep in mind that even when the changes take place, these accounts are still likely to be more competitive than the top easy access savings accounts.

The Tesco Bank Internet Saver, for example, pays just 1.01% AER (variable). This includes a fixed bonus of 0.26% for 12 months, so once the first year is up the rate will drop to 0.75% AER (variable).

If you’re thinking of switching to another current account, the Nationwide Flex Direct current account still pays a competitive 5.00% AER fixed for 12 months on balances up to £2,500 (after which point the rate falls to 1.00% AER variable).

But for how long, nobody knows.

The Tesco Bank current account also pays 3.00% AER (variable) on balances up to £3,000.

Alternatively, if you’re happy to lock away some of your funds, you could consider a fixed rate bond or peer-to-peer lending. Note that peer-to-peer accounts are not the same as traditional savings accounts and there is a risk you may lose some or all of your initial investment.

Peer-to-peer lending is regulated by the Financial Conduct Authority, but your money is NOT protected by the Financial Services Compensation Scheme. There is a risk you may lose some or all of your initial investment.

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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