Current account rates and switching perks are being reduced across the board according to new analysis from moneyfacts.co.uk. In analysing the latest figures from the Current Account Switch Service (CASS), it was revealed customers are switching away from some of the biggest banks on the high street to challengers such as Starling Bank and Monzo Bank, who experienced high gains.
Rachel Springall, a Finance Expert at moneyfacts.co.uk, commented on the switching landscape, noting a popular option among current savers: “Consumers looking to take advantage of switching cash perks do not have long to do so, as current accounts providers continue to adjust their offerings. Most recently, Bank of Scotland and Lloyds Bank pulled their £100 switching offer and next week NatWest will pull its £125 cash perk.
“Those customers looking for benefits on a current account will have also seen perks cut on some of the most lucrative deals recently too.
“Santander’s 123 Current Account has had its cashback on communication bills cut from three percent to one percent and the fee on its alternative 123 Lite account has risen to £2 per month.
“During the first full second quarter of 2020, Santander experienced a net loss of over 12,000 switches, and with these latest changes, it will be interesting to see whether customers move elsewhere.
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“Starling Bank gained over 11,000 switches over Q2 and although it does not currently offer a cash switching perk, its service levels are high, it offers a simplistic structure and reasonable overdraft tariff, and may well entice customers looking for an alternative to what is available from the high street banks.
“Perhaps then, consumers are becoming wiser to what is essential for their day-to-day banking needs, which may well have been highlighted due to the Coronavirus pandemic.”
Additionally, Rachel went on to examine current account interest rates, which are also struggling at the moment.
The ongoing pandemic has not helped the situation, as Rachel continued: “Savers turning to high interest current accounts will be disappointed by the state of play, with many lucrative offers seeing rate cuts in 2020.
Most recently, Bank of Scotland and Lloyds Bank made cuts of up to 0.50 percent, which means customers who have £4,000 in their account will earn 1.50 percent instead of two percent AER.
“The highest interest rate on offer on a standard current account today comes from Virgin Money, at 2.02 percent AER on balances up to £1,000 and as an alternative, Nationwide’s FlexDirect currently pays two percent AER on balance up to £1,500 for the first year.
“As is commonplace, there will be a balance limit to how much interest someone can earn, plus there may be other eligibility criteria to meet too.
“Clearly, it is vital consumers decide carefully if now is the time to switch, but if they wait too long, they may well miss out on a free cash switching perk.
“At present, providers will be assessing how they can sustain any lucrative offers in light of the pandemic.
“With this in mind, we could well see more changes in the months to come and if this does indeed occur, consumers would be wise to review whether their account is still worth keeping.”
Interest rates for a range of products are unlikely to rise any time soon given recent decisions from the Bank of England.
On November 5, the central bank decided to keep the base rate at the record low of 0.1 percent, which limits the options available to retail banks.
The next base rate decision will occur on December 17 and some fear it is only a matter of time until the Bank of England moves into negative territory.
It should be noted once the 2.02 percent rate is utilised, money held within the account over £1,000 will not receive any interest added to it, wither gross or AER.