Tesco Bank has launched its delayed current account, tempting customers with 3% interest and extra Clubcard points.
The supermarkets banking arm is firmly trying to position itself as a challenger bank, with
Tesco Bank launch current account
chief executive Benny Higgins stating that the future of the industry may not be determined by the current big High Street names.
Tesco Bank will pay 3% interest on balances up to £3,000 and deliver Clubcard points to customers when they spend with their debit card both in and out of Tesco. Its own instant access online savings account only pays 1.35% interest.
But the current account will carry a £5 per month charge for those who fail to pay in £750 in any given month – hitting those on lower incomes.
Customers get an additional Clubcard point for every £4 spent in Tesco using their debit card, on top of the four they already get, and one point for every £8 spent outside Tesco.
The current account arrives four-and-half years after Tesco took full control of its personal finance business, which had previously been a joint venture with RBS.
Tesco hopes to win disaffected customers from rival banks, capitalising on the success it has seen so far with the bank, which has managed to overcome the general malaise hitting its supermarket parent.
The bank grew underlying profits before tax 16% to £210million on £1billion of revenue last year.
Customers will be able use cash deposit and withdrawal facilities at up to 300 Tesco shops around the country, but the supermarket has stopped shy of installing branches in stores, saying it would be digitally focussed and be served by a round-the-clock UK call centre.
The bank already has 6 million customers across its savings, mortgages, credit cards, loans and insurance business and it believes it can convert a sizeable number of them to bank account customers, while winning over others too.
Mr Higgins said: “When we asked customers what they wanted us to do next, they said you need a current account, because if you don’t have a current account you’re not credible as a bank.”
Taking a swipe at the current market, he said many bank accounts involved ‘smoke and mirrors’ and that very few paid customers any reward whatsoever.
The 3% interest on in-credit balances up to £3,000 paid by Tesco goes up against some rivals who offer to pay more, or extend their interest to larger balances.
TSB, which launched its share prospectus for floatation yesterday, pays 5% interest on its Classic Plus account, but that is limited to balances of up to £2,000.
Lloyds pays up to 4% interest on its Club Lloyds account, but this is tiered. It starts at 1% above £1,000, steps up to 2% above £2,000, and then 4% above £4,000 – with no interest paid above £5,000.
Santander’s 123 account also pays 3% interest, but again steps it up, starting at 1% if you have a balance above £1,000, 2% if you have £2,000 in the account and 3% for those with £3,000 to £20,000. It also pays cashback on household bills, but charges a £2 monthly fee.
Halifax’s Reward account pays £5 per month to those who pay in at least £750 in a month and will give new customers £100 for signing up.
Nationwide pays 5% interest on balances up to £2,500 on its FlexDirect account, but this only lasts for the first year.
Savers have latched on to interest-paying current accounts to try and beat low savings account rates, as many now deliver a better return than a traditional deposit account.
Most of the interest-paying accounts come with a variety of terms and conditions, ranging from using a switching service, to setting up a number of direct debits or paying in a set amount a month – as much as £1,500 in some cases.
Tesco claimed to have cut through this with its simple interest rate offer and no monthly charge if you pay in more than £750 per month. But Mr Higgins and banking managing director David McCreadie conceded this would hit some customers with lower incomes.
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