MONEY COMMENT
Get A Better Current Account

By Cliff D'Arcy
January 29, 2003

The current account war is hotting up: today, Lloyds TSB (LSE: LLOY) announced it plans to increase dramatically the credit interest paid to its current account holders.

At the moment, existing customers of the UK's fifth-largest bank receive a miserly 0.1% interest while in credit. This means that, on a constant balance of £100 and after 20% lower-rate savings tax, the net interest is a mere 8p a year!

With effect from 10 February, Lloyds TSB will increase the highest interest rate by 32 times, to 3.2% a year. The new "Plus" account also includes a lower overdraft interest rate, reduced to 8.7% APR from 9.9% APR.

Here's the catch: existing accounts will not be upgraded automatically to this account. Instead, both new and existing customers will have to apply for it online. Also, only customers paying in a minimum of £2,000 a month are eligible for the top rate. Customers paying in a minimum of £1,000 a month will get a bit less (2.53%). Interest on any excess balance over £5,000 will be paid at just 0.1%.

Given that the average wage in the UK is less than £25,000, which works out at around £1,500 a month after deductions, only the fairly affluent will be able to receive Lloyds TSB's best rate.

So, is the "Plus" account a good deal? It's certainly superior to the standard offerings of the "Big Four" banks that control over 80% of existing current accounts, shown below:

* Barclays (LSE: BARC), HSBC (LSE:HSBA), Lloyds TSB and Royal Bank of Scotland/NatWest (LSE: RBS) all pay a pathetic 0.1% credit interest.

On the high street, the best deals are from:

* Alliance & Leicester (LSE: AL.) pays 3.1% credit interest
* Abbey National (LSE: ANL) pays 3% credit interest
* HBOS (LSE: HBOS) Halifax and Bank of Scotland both pay 3% credit interest
* Nationwide BS pays 2.5% credit interest

Online accounts offer even better rates:

Cahoot (a division of Abbey National) pays 3.64% credit interest (3.74% with no cheque book)
Intelligent Finance (IF, a division of HBOS) pays 3.15% credit interest
Smile (a division of Co-op Bank) pays 3% credit interest

So, you could sit tight and wait patiently for your bank to react to Lloyds TSB's announcement or, alternatively, you could vote with your feet and switch to a better deal now.

Visit our Online Banking Centre to view - and even apply for - some of the Best Buys.

The writer has a beneficial interest in Abbey National and HBOS shares.