Lloyds TSB became the latest high street bank to raise the stakes in the competitive current account market yesterday, becoming the first to offer instant interest on money deposited by cheque.
Customers currently have to wait until a cheque is cleared - typically three days after it is deposited - before banks will begin paying interest. However, Lloyds said it was changing its policy after a recent survey, which revealed 90 per cent of its customers were "angry" about the fact they had to wait for a cheque to clear before they started receiving interest on their money.
In addition, it said it would also allow customers with an overdraft to reduce the amount of interest they are paying from the moment they pay in a cheque.
"Customers feel cheated when they pay in a cheque and don't earn interest straight away," said Terri Dial, the group executive director for UK retail banking. "From today, our customers stand to earn over 150 days' more interest and we invite people who are losing interest in their bank to switch to us. Listening, understanding and responding to what our customers want is how we plan to run our business."
The group said it wanted to dispel the myth that banks make a profit by holding on to money for three days after a cheque is deposited. Some 60 per cent of the 8,000 bank customers surveyed said they believed this was the case.
However, rival banks immediately moved to downplay the move yesterday, claiming it would be insignificant for most customers. The offer only applies on cheques up to a value of £1,000, and is subject to a limit of £1,000 each day.
Alliance & Leicester pointed out that Lloyds pays only 0.1 per cent interest on its classic current account, adding that cheques were a dying method of payment which were likely to be extinct within a few years.
Like A&L, however, Lloyds also offers higher-interest-bearing accounts for customers who pay a minimum amount into their account each month.
Stuart Glendinning, managing director of moneysupermarket.com, the comparison website, said he was impressed by the move. "I'm inclined to give them the benefit of the doubt on this one," he said. "You could argue it's a bit gimmicky, given that cheques are dying out, and it probably won't cost them very much.
"But Lloyds, to some degree, has been setting the pace in the high street when it comes to the current account market. Its current account plus pays 4 per cent. There are conditions, and there probably are better products out there. But when it comes to the big four, it has been at the head of the field. This is another move in the right direction, and puts pressure on the others to follow suit."Reuse content