Yahoo Finance Current account cuts: Lloyds and Bank of Scotland reduce rates by 25pc
Lloyds Banking Group is cutting the rates of two key current accounts by 25pc and pushing up the fee of packaged bank accounts from July 1.
Club Lloyds and Bank of Scotland Vantage customers will see their rate reduced from 2pc to 1.5pc, despite a highly anticipated Bank Rate rise and market rates increasing elsewhere.
This means that instead of earning £100 a year on a maximum balance of £5,000, you’ll earn £75.
Customers must still set up two direct debits and pay in at least £1,500 or £1,000 per month respectively.
The monthly fee of all packaged bank accounts from Halifax, Lloyds and Bank of Scotland will increase by £2 a month.
The Lloyds Platinum account, for example, which includes other services such as mobile phone and breakdown cover, will rise from £17 to £19 per month.
Customers will be limited to two mobile phone claims a year, rather than an unlimited number previously.
To soften the blow Lloyds is increasing the phone excess from £50 to £100. The AA breakdown cover is also changing to include unlimited callouts up from the current limit of between five and nine.
The banking group did not explain the changes, but said it regularly reviews its accounts.
Andrew Hagger of Moneycomms, the personal finance site, said Lloyds' announcement was "bad news" and customers should use these "big changes" as a trigger to see if they could get a better deal elsewhere.
He said: "If I were a customer, I wouldn't be overly pleased. The cuts are significant and while the Halifax account fee is increasing, they've actually diluted the services you're paying for."
The banking group refused to answer why it was cutting rates and increasing the fee of its current account other than to say it regularly reviews its accounts, making "alterations as appropriate". It insists its current account remains good value and competitive.
But Mr Hagger said there were better accounts elsewhere.
For example, Nationwide's Flexplus packaged account costs £13 a month and it pays 3pc interest on balances up to £2,500. Customers also get worldwide family travel and mobile phone insurance, as well as UK and European breakdown and recovery assistance.
But packaged bank accounts are only worthwhile if you use all the benefits.
If you're looking for a high interest current account, Santander pays 1.5pc on balances up to £20,000 and 3pc cashback on household bills. You'll need to set up two direct debits and pay in £500 a month. There's also a £5 monthly fee.
Nationwide offers 5pc on smaller balances of £2,500 for 12 months. After a year the rate drops to 1pc. The account must be credited with £1,000 a month.
Tesco Bank pays 3pc on £3,000 as long as three direct debits are set up and £750 is paid in each month.
Watch out for other cuts
Mr Hagger said he wasn't sure why Lloyds was making cuts now but suggested that it wanted to stop people using the current account for savings.
He said: "A few years ago, when savings rates were dire, people were taking advantage of the high interest current accounts to stash their cash. It's not profitable for banks to pay out on the large sums so they may start cutting back."
Mr Hagger warned that other current account providers might follow suit, as was the case in 2016.
Santander was the first of the top providers to make an announcement in August 2016 that it would be cutting the rate of its popular 123 current account from 3pc to 1.5pc, which it paid on balances of between £3,000 and £20,000. Returns were reduced from £540 a year to £240, minus the £5 monthly fee, for those with the largest balances.
On October 11, Lloyds announced it would no longer be offering savers 4pc on balances between £4,000 and £5,000. Instead it would be paying just 2pc on £5,000.
Less than 24 hours after the Lloyds announcement, TSB revealed the rate of its Classic Plus account would also be changing. Instead of offering 5pc on £2,000 it would pay 3pc on £1,500, reducing the maximum of interest earned in a year from £100 to just £45.
