Lloyds ramps up account competition

Competition in the current account market has been ramped up further as Lloyds Bank unveiled a new product with a 4% rate of interest and confirmed it is putting its paid-for packaged accounts back on sale in branches.

Lloyds bank is seeking to entice more customers with changes to the current accounts on offer
Lloyds bank is seeking to entice more customers with changes to the current accounts on offer

The new Club Lloyds current account will pay a tiered interest rate of up to 4% on balances up to £5,000 and will give customers access to a range of other perks including savings and mortgage deals, cinema tickets and restaurant discounts.

The deal is the latest in a new wave of current accounts which are offering savers more attractive returns than those being seen on many savings accounts.

Lloyds also confirmed that it is to put paid-for current accounts back on sale in branches after pulling the plug just over a year ago.

The bank has previously explained that it took its packaged accounts off sale temporarily in order to bring the way it sells them into line with its sister bank, Halifax.

It has also said the move was unrelated to an industry-wide crackdown on sales of packaged current accounts by regulators last year amid concerns that some people were having unsuitable products pushed on them.

Customers have still been able to apply for Lloyds' silver account, which charges £9.95 a month and its £17-a-month platinum account online and from Monday, when the new Club Lloyds current account launches, they will also reappear in branch.

The Club Lloyds account is available "free" to new and existing customers who use it as their main current account, by paying £1,500 in a month and setting up two direct debits a month. Anyone who does not want to do this can still get the current account but they will need to pay in £5 a month.

Customers will get 1% interest on balances from £1 to £1,999.99, 2% interest on balances between £2,000 to £3,999.99 and 4% interest on balances of £4,000 to £5,000.

They will also have access to a monthly savings account which pays 4% interest on savings of up to £400 each month, a mortgage rate reduction of 0.20% and a range of "lifestyle benefits" including six cinema tickets a year, an annual magazine subscription or access to discounts at more than 6,000 restaurants with an annual Gourmet Society membership.

Lloyds also runs an "everyday offers" rewards scheme, which gives customers up to 15% cashback on their everyday spending.

The new current account has a £100 interest-free overdraft buffer, after which the borrowing rate is 19.94%.

Banks and building societies have unleashed a flood of new current account perks since an industry-wide guarantee was launched last September to make it easier for people to ditch their old provider and switch to a new one.

The guarantee, being overseen by the Payments Council, has cut the length of time it takes to switch providers to seven working days and outgoing and incoming payments are now automatically swapped over to the new account.

TSB, which split with Lloyds last year, recently unveiled a new current account paying 5% interest on balances up to £2,000 - and customers can have two accounts if they want to.

Building society Nationwide also offers a current account with a 5% interest rate on balances up to £2,500, which reverts to 1% after 12 months. Santander's 123 current account has a rate of up to 3% plus cashback on bills.

Marks & Spencer plans to shake up the current account market further by launching its first "free" account this summer.

Customers will be offered a £100 M&S gift card to switch to its new current account as well as loyalty points which they can spend in its stores and an automatic £500 overdraft, the first £100 of which is interest free.

Tesco Bank is also waiting in the wings to launch into the current account market in the first half of 2014, saying its deal will be designed to reward customer loyalty and Virgin Money has also said it intends to start offering current accounts later this year.

Kevin Mountford, head of banking at comparison website MoneySuperMarket, said: "The introduction of seven-day switching last year has had a major impact on the banking industry with many of the big providers now focusing on new deals which benefit consumers - the latest from Lloyds with the launch of the Club Lloyds account.

"This account is particularly attractive if you keep a high balance on the account, and the additional benefits and the opportunity to get a decent regular saver's rate on savings, means it may be attractive to many consumers."

Andrew Hagger, founder of Moneycomms.co.uk, said: " 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."