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| Banks calling halt to credit interest on current accounts Majority of accounts no longer receiving interest payments, making the fixed-bond market more attractive for saversMore than half of all current accounts no longer pay interest to customers who are in credit, according to a report by Moneyfacts.co.uk. It found that 55% of current accounts no longer pay interest to people who are in credit, while 28% pay just 0.1% or less. In total, the average interest rate paid on a current account is just 0.77%.In recent weeks, NatWest and RBS have stopped paying credit interest on all of their current accounts, while Santander has halted credit interest entirely on selected current accounts, and on any balance over £2,500 on others. These add to a growing list of providers that no longer pay on current accounts, including Barclays Bank, HSBC and The Co-operative Bank.Michelle Slade from Moneyfacts.co.uk said: "The loss of interest at 0.1% is likely to make little difference to each individual customer, but for the banks it will be a significant cost saving. Most people bank with one of the big banks, so it is highly likely the majority of people are receiving no interest on the money in their current account. Anyone maintaining a significant balance in their current account should consider switching to an account that pays interest or move their money into a savings account."Andrew Hagger of Moneynet.co.uk added that £3,000 deposit in a current account earning 0.1% gross would earn interest of £2.40 in one year; whereas £3,000 switched to NatWest's Instant Access Account paying 2.85% would, after tax, earn £68.40 in a year – a 2,750% increase in return.Savers looking for a competitive rate of return would do better to move their money to the fixed-rate bond market. Tesco Bank has entered the savings market for the first time as a standalone bank, offering fixed-rate bonds paying up to 3.5% gross over two years, immediately putting it near the top of the best-buy tables.The Tesco Bank Fixed Rate Saver pays 2.95% gross for customers who deposit their savings for one year, and 3.5% gross if they deposit their savings for two years, though customers are locked in until the end of the term and the minimum deposit on both bonds is a hefty £2,000.Hagger says this makes Tesco Bank "pretty competitive, if not at the top of the best-paying accounts".In the one-year bond market Tesco is beaten by Northern Rock, which pays 3% on its one-year bond on a minimum deposit of just £1. First Direct pays 3% on its one-year bond but requires a minimum deposit of £2,000, making it only marginally better than Tesco Bank's offering.Among two-year bonds Cheshire Building Society and Dunfermline Building Society both pay 3.6% on low minimum deposits of £100 – both better value than Tesco Bank – while Halifax pays 3.55% on sums of £500 or more."It will be interesting to see how long Tesco Bank keeps these products open for. Often when a company launches a product with a headline rate that's way out there, it is withdrawn after a week," says Hagger. "But Tesco Bank's rates aren't higher than anything else on the market and I'd be surprised if they withdrew these after a short time."Tesco bought Royal Bank of Scotland's remaining 50% share in Tesco Bank at the end of 2008 and now fully owns it. The fixed-rate bonds are expected to be followed by a range of mortgages.Benny Higgins, the chief executive of Tesco Bank, said: "The Tesco Bank Fixed Rate Saver [bonds] are simple to open. We know this is important to customers who will be able to open an account over the phone with a low minimum deposit of £2,000, which can be transferred immediately by debit card. We look forward to offering customers even more choice as our business develops."Banks and building societiesSavingsBankingInterest ratesConsumer affairsMark Kingguardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds guardian.co.uk |
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