Lloyds' offers a 'don't switch' carrot: join the Club and get 4% interest

The bank's latest bid to try and hold on the customers is good news for some .... and bad news for Vantage holders

With several new players parking their tanks on its lawn, Lloyds Bank has hit back with a new current account paying up to 4% interest. It claims customers can earn up to £196 gross interest a year, and is also dangling the carrot of a monthly savings account that pays the same rate.

But at the same time the partially state-owned bank is ditching its Vantage account and slashing interest rates for many existing customers – seemingly in an attempt to persuade people to move over to the new offering. So is the new account, called Club Lloyds, a good deal? If you are an existing Lloyds Vantage account holder, should you stick with that? And are there better deals on offer?

Lloyds's account appears to be an attempt to hold on to customers who might be tempted to switch to a rival. Virgin Money, M&S Bank and Tesco Bank are among the new entrants launching current accounts in the coming months.

Club Lloyds will be available from Monday via the bank's website, in branches and over the phone. It is open to new and existing customers, and its best perk is its in-credit interest rate.

However, many less well-off customers won't be able to get that 4% AER headline rate, as it is payable only on balances of between £4,000 and £5,000. On balances of £2,000 to £3,999, the rate is 2%, while on £1 to £1,999 it is only 1%. These rates apply to your whole balance – for example, if you have £4,500 in your account you will receive the 4% on your entire balance.

Interest is paid monthly and to be eligible, you need to use Club Lloyds as your main current account, which means paying in at least £1,500 a month and using it to pay two or more direct debits per month. If you don't want to use it as your main account, there's a £5 monthly fee.

The other perks include access to a monthly savings account paying 4%, where you can stash away up to £400 each month; a rate reduction of 0.2% for those taking out a Lloyds mortgage; and one of a number of "lifestyle benefits" including six Vue cinema tickets per year. Customers will also get a £100 interest and fee-free planned overdraft, and if a customer goes over their limit, they will have a "grace period" of until 3.30pm the next day to rectify things.

The new account replaces Vantage, an option that can be added to Lloyds current accounts which has proved popular. Vantage interest rates are currently 3% AER on balances of £3,000 to £5,000, 2% on £1,000 to £3,000, and 1.5% on £1 up to £1,000. But the bad news is that from July, the rates on Vantage will be cut to 0.5% on balances up to £3,000, and 1.5% from £3,000 to £5,000.

In other words, a Vantage customer with £2,000 in their account will see their rate tumble from 2% now to 0.5% in July. They may wish to switch to Club Lloyds in order to receive 2% – a bank spokeswoman says this can be done easily online, in branch or over the phone.

Someone with £3,500 in their account will see their rate fall from 3% to 1.5% in July, but switching to Club Lloyds would only boost their rate to 2%.

Andrew Hagger at the MoneyComms.co.uk website reckons that for people with bigger credit balances, the 123 current account from Santander, which pays 3% interest from £3,000 up to £20,000, remains the stand-out deal.

Meanwhile, if you are not someone who keeps much money in your account and are regularly overdrawn to the tune of more than £100, there are cheaper accounts. First Direct's 1st Account gives customers an automatic £500 overdraft when they open their account, the first £250 of which is interest-free. Its overdraft rate is 15.9% EAR.


Rupert Jones

The GuardianTramp

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