No interest paid on most current accounts
Wednesday 06 October 2010
More than half of all current accounts no longer pay interest to customers who are in credit, research showed today.
Banks are slashing the amount of interest they pay to their current account customers, with increasing numbers stopping the payments altogether, according to financial information group Moneyfacts.co.uk.
Around 55% of current accounts on the market no longer pay interest to people who are in credit, while a further 28% pay a rate of just 0.1% or less.
The group found the average return paid on a current account is now just 0.77%.
But the amount of interest banks charge customers who take out an authorised overdraft is nearly 20 times higher at 14.65%.
A number of big names no longer pay interest to their current account customers, including Barclays, HSBC and the Co-operative Bank.
Royal Bank of Scotland and NatWest, which received a government bail out, stopped paying interest on the majority of their current accounts earlier this year.
Lloyds TSB, part of the Government-backed Lloyds Banking Group, is also due to stop paying interest to people with a standard current account from December 2.
Michelle Slade, spokeswoman for Moneyfacts.co.uk, said: "The loss of interest at 0.10% is likely to make little difference to each individual customer, but for the banks it will be a significant cost saving.
"Most people bank with one of the big banks, so it is highly likely the majority of people are receiving no interest on the money in their current account.
"Anyone maintaining a significant balance in their current account should consider switching to an account that pays interest or move their money into a savings account."
The group said the number of current accounts that charged a monthly fee had also nearly doubled in the past five years from 25 to 49 now.
These are typically packaged accounts, under which customers pay a monthly fee in exchange for a range of benefits, such as free travel insurance or breakdown cover.
Banks are increasingly keen to migrate their customers on to these accounts, as they tend to be more profitable than standard current accounts.
But Moneyfacts said many providers were no longer offering preferential interest rates to people who opted for a packaged account.
Ms Slade said: "Banks are keen to tempt customers into opening fee-paying accounts as a large proportion of customers will pay the monthly fee and not use the benefits.
"A few years ago, fee-paying accounts offered better overdraft and credit interest rates as well as additional benefits, but this is no longer the case."
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