Money Insider: Tesco Bank plays shopper loyalty card

After months of waiting and speculation, Tesco Bank finally launched its current account this week.

The UK's biggest supermarket bank is using a two-pronged customer recruitment strategy, consisting of credit interest and loyalty rewards.

In a market that has become increasingly competitive this year following moves from TSB, Lloyds Bank and M&S Bank, Tesco is the latest challenger attempting to lure customers from the clutches of the high street institutions.

It will pay 3 per cent interest on credit balances up to £3,000, and it's not a 12-month promotional deal, so anyone keeping the maximum £3,000 in their account all year will pocket £72 in interest – once the taxman has had his 20 per cent.

If earning money on your bank account is your key criterion then for those with a balance of £3,000 or less it compares well with Halifax Reward, Santander 123 and Lloyds Bank (Club Lloyds) but is less generous than TSB which pays 5 per cent on the first £2,000 on its recently revamped Classic Plus account.

Spending on the Tesco Bank debit card enables you to earn one reward point per £4 spent in store and one per £8 elsewhere: not over-generous but a useful points enhancer for Tesco shoppers who can already earn one point per £1 spent with Tesco.

You don't have to switch any direct debits across to qualify for this account but you must pay in a minimum of £750 a month if you want to avoid charges, otherwise a £5 monthly fee is payable.

For overdrafts Tesco Bank will charge 18.9 per cent AER for both authorised and unauthorised borrowing. The rate is reasonable when compared with its peers and a cheaper option than banks charging fees of 50p to £1 a day, which can prove very costly for people borrowing only a couple of hundred pounds.

Those needing to pay in cash or cheques can use one of 300-plus Tesco stores across the UK.

Digital pocket money

Laptops and smartphones play an integral part of daily life for many families, and whether it's work or leisure, new technology has made many tasks easier and quicker to complete.

With so many financial transactions now virtual and carried out without resort to notes and coins, it's no surprise that 21st century gadgets are also having an impact on traditional family tasks such as dishing out pocket money.

One of the better recent examples of "cash-free" pocket money is goHenry (gohenry.co.uk) a modern-day money management and education tool for families.

goHenry enables your children to earn, save and spend and teaches them to appreciate the value of money. It comes with a secure pre-paid debit card with parental controls.

At the same time it allows parents to monitor and control their children's spending via a few taps on their smartphone or laptop. It is aimed at children aged between eight and 18 and is a simple way to educate children on how to manage their own money.

Parents set rules and limits, can allocate pocket money automatically or set tasks allowing their children to earn extra cash.

Both parent and child can see their earning, spending and saving online, while the prepaid card won't let your children get into debt.

You can try goHenry free for the first month and after that it costs £1.97 per month per child, which sounds a small price to pay if you can dish out the weekly pocket money and keep tabs on it at the touch of a button.

Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk