Halifax, Lloyds and TSB to slash rewards and interest on top current accounts

Blow for savers as Halifax, Lloyds and TSB plot huge cuts. Is it time to ditch them?

Halifax, Lloyds and TSB are to slash the rewards and interest rates on their top current accounts from next year.

Lloyds will halve the top rate of interest paid on its Club Lloyds current account from 4% to 2% in January, while TSB will cut the interest it pays on the Classic Plus account from 5% on balances up to £2,000 to 3% on balances up to £1,500.

The Halifax/Bank of Scotland Reward and Ultimate Reward current accounts, which currently pay a reward of £5 a month will be reduced to £3 a month from February 2017.

The banks say they are responding to ‘changing market conditions’, referring to the Bank of England’s decision to cut the Base Rate from 0.5% to 0.25% in the summer.

It comes after Santander announced it would halve the top rate on its 123 Current Account from 3% to 1.5% from November.

These changes are terrible news for savers, many of whom have moved their cash to high-interest current accounts as they generally pay far more than traditional savings accounts.

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What you need to know

Here’s a rundown of what you need to know about the changes hitting these top deals.

Club Lloyds

The Club Lloyds account currently pays tiered rates of interest. You can get 1% on balances under £2,000, 2% on balances between £2,000 and under £4,000 and 4% on balances between £4,000 and £5,000.

From January 8 2017 the tiered interest system will be scrapped and instead a flat rate of 2% will be paid on balances from £1 up to £5,000.

The account will continue to come with the choice of one of three lifestyle benefits each year and the monthly fee of £5 which is charged unless you can deposit £1,500 a month, will be reduced to £3 a month from January.

Lloyds says it is writing to customers to give them two months’ notice of the changes.

TSB Classic Plus

The TSB Classic Plus current account offers a variable rate of 5% on balances up to £2,000, but from January 4 2017 the rate will be reduced to 3% on balances up to £1,500.

The bank is writing to customers to give them two months’ notice of the change.

Customers will still also be able to earn 5% cashback on the first £100 of contactless payments every month.

Those who opened a Classic Plus account before June 1 2016 will be able to earn it until December 31 2016. While customers who opened a Classic Plus Account on or after 1 June 2016 will be able to earn it on the first £100 of contactless payments every month until September 30 2017.

Halifax/Bank of Scotland Reward and Ultimate Reward

The Halifax Reward and Ultimate Reward and Bank of Scotland Reward and Ultimate Reward (currently not available to new customers) accounts pay £5 a month or £60 a year as long as you stay in credit, pay in at least £750 a month and have at least two direct debits set up.

From February 1 2017 the reward will be slashed to £3 a month meaning you will earn £36 a year.

Ultimate Reward users get the cash bonus paid as a deduction on their current account fee of £15 a month. So instead of £10 a month they will have to pay £12 a month for the account.

Halifax says it will still offer a £100 switching bonus for those that move to any of its accounts via the Current Account Switch Service and will give existing customers two months’ notice of the changes.

Should you ditch and switch?

If you have any of these accounts, you should weigh up whether they are worth keeping.

The reality is most of the top account providers are making changes to adapt to a low-rate environment and so there may still be more bad news to come.

Based on what we know at the moment, we’ve looked at what the rewards and interest pay now and after the changes on the top accounts to make it a bit clearer which makes the most sense for you.

*5% interest is fixed for 12 months, rate fall to 1%is thereafter

**Figures include deduction of £5 monthly fee but not cashback on bills

***Assuming you avoid the monthly fee by paying in £1,500 a month

****Reward isn’t based on your balance. If you switch you can also get a £100 reward

For smaller balances Nationwide makes the most sense.

Nationwide hasn't yet made any changes to its FlexDirect account, which pays 5% on balances up to £2,500 for 12 months and 1% thereafter.

Unlike its rivals the rate is fixed, so if you sign up now you can guarantee the rate for at least 12 months.

A Nationwide spokesperson told loveMONEY: "We have no current plans to reduce the interest payable on our current accounts, although keep our rates continually under review."

If you have a balance of £5,000, the Club Lloyds account is still a good bet even after the rate is slashed and will pay more than its rivals on this amount as long as you can avoid the £5 or £3 monthly fee by paying in £1,500 a month.

For larger balances over £15,000 the Santander 123 Current Account is the best home for your cash even after it halves its top rate.

However, if you have less than this amount you are better off elsewhere as the account will cost you more than it earns, unless you are able to earn cashback to counteract the monthly fee of £5.

Remember you can get around the caps the current account have and boost the amount you can earn these top rates on by opening more than one. Take a look at How many current accounts can I open: Nationwide FlexDirect, TSB Classic Plus, Club Lloyds, Tesco Current Account for more.

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