On Tuesday, Lloyds TSB launched Vantage, its new current-account package. We do the sums and put it to the test.
According to The Fool’s independent, unbiased search engine, you can choose from a whopping 176 different current accounts.
On Tuesday, your options increased, thanks to the launch of a new account from Lloyds TSB. Strictly speaking, this isn’t a new account as such, but a free add-on to current accounts known as ‘Vantage’. You can add Vantage to a new or existing Lloyds TSB Classic, Silver, Gold, Platinum or Premier current account. By doing so, you can enjoy a higher rate of interest on credit balances.
Interest rates for current accounts with Vantage
Clearly, Lloyds TSB has set its sights on recruiting well-heeled customers, because the interest rates for Vantage are most appealing to customers who keep at least £5,000 in their current accounts, as the following table shows:
Credit balance (£) | Interest rate (% AER) |
|---|
Up to £999 | 0.10 |
£1,000 to £2,999 | 2.00 |
£3,000 to £4,999 | 3.00 |
£5,000 to £6,999 | 5.00 |
Over £7,000 | 0.10 |
Now for the catches...
As you can see, Vantage pays ‘tiered’ rates of interest which step up as your balance increases. Thus, with a balance of £4,000, you earn 3% on the full £4,000 and not just on the excess over £3,000. However, as with other leading current accounts, Vantage has a cut-off point for its top rate of interest. Any excess credit balance over £7,000 earns the standard interest rate of 0.10% AER.
Thus, if you have a balance of, say, £9,000, then the first £7,000 will earn interest at 5%, with the remaining £2,000 earning a feeble 0.1% a year. What’s more, in order to earn Vantage rates of interest, you must pay in at least £1,000 a month and stay in credit each month. Otherwise, you will earn the standard rate paid by your Lloyds TSB account.
So, in order to take maximum advantage of Vantage, you should maintain a credit balance of between £5,000 and £7,000. I don’t know about you, but my bank balance goes up and down like a student’s drinking arm! Hence, I’d find it very hard to make the most of Lloyds TSB’s top interest rate of 5%, especially as I tend to ‘sweep’ any large sums into a top-paying savings account.
My Foolish view
Although I welcome any increase to the interest rates paid on credit balances, this Vantage add-on strikes me as something of a gimmick. It’s not terribly attractive for customers who keep a balance under £5,000 or go overdrawn. Likewise, it’s not much use for account-holders with ultra-high credit balances.
Indeed, Lloyds TSB customers adding Vantage to their Classic Plus account could be worse off, as this pays 4% AER on balances up to £2,500. What’s more, only one in twenty (5%) current accounts has a credit balance of £5,000 or more, so Vantage is aimed at a niche, well-heeled target market. Hence, the appeal of Vantage is strictly limited to the ‘Five to Seven Grand Club’.
Best Buy current accounts
For customers looking for a super-high rate of interest on credit balances, here are my four top picks:
Account | Credit
interest
rate
(% AER) | Monthly funding
(£) | Notes |
|---|
Alliance &
Leicester
Premier Direct
Current
Account | 8.50 (fixed for
a year) | 500 | 0.10% paid
on balance over
£2,500 |
Abbey Current
Account (Credit Option) | 8.00 | 1,000 | 2.50% paid on
balances
over £1,000
(£2,500 for
transferred
accounts) |
Coventry BS
First | 5.60 | 1,000 | Paid on up to
£250,000;
includes
0.85% AER
bonus for a year |
Halifax High Interest
Current | 5.12 | 1,000 | 0.10% paid on
balance over
£2,500 |
As you can see, for credit balances under £2,500, you can earn 8.5% a year at Alliance & Leicester and 5.12% with Halifax. However, for bumper balances, Coventry BS is the winner, as it pays its table-topping rate on up to a quarter of a million pounds, giving it the gold medal for wealthy customers.
More: Ditch and switch your current account today! | Get £100 & Free Travel Insurance | My Five Favourite Student Accounts
