A&L and HSBC increase current account in-credit interest rates

Mike Naylor, personal finance expert at uSwitch.com, the independent online price comparison and switching service, comments on both Alliance & Leicester’s and HSBC’s moves to increase current account in-credit interest rates this week:

“Convincing consumers to switch current accounts is still an uphill struggle. The switching market relies heavily on providers’ innovative marketing tactics to offer best buy rates or, in some cases, the carrot of hard cash. First Direct kicked off the year with their ongoing offer to give £100 to every current account switcher. This move has been followed by Alliance and Leicester and HSBC’s in-credit interest rate increases to 8.5% and 8% respectively on selected accounts.”

Naylor continues: “Alliance and Leicester’s decision to increase rates on the Premier Direct Account (from 6.5% AER to 8.5% AER) and the Premier 50 account (from 7% AER to 8.5% AER) will certainly ruffle some feathers in the current account market whilst stealing the number one spot in the best buy tables. With the impending OFT investigation and current account providers’ never ending tactics to squeeze more money out of consumers, this is a breath of fresh air.

“Although these rates are only available to new customers for the first 12 months of the account opening, this is still a bold and generous move. The Premier Direct current account has been consistently competitive with a 0% overdraft facility for the first 12 months and the in-credit interest rate, which is applied to balances of up to £2,500. Customers will also benefit from a competitive ‘go-to rate’ of 1% below the base rate after the 12 month deal ends, at the moment this would be 4.5% AER.

“The Premier 50 account is a packaged account for the over 50s, so consumers have to take into account the £120 annual fee. This fee will negate the competitive in-credit interest rate if consumers don’t use the worldwide travel insurance or the medical benefits offered with the account.

“HSBC has made a similar move this week by increasing the rate on its packaged Bank Account Plus from 2.5% AER to 8% AER. They have also reduced the overdraft rate from 16.1% EAR to 8% EAR – both of these rates are available for the first 12 months. After the offer period ends, these current account customers will get an in-credit interest rate of just 2.5% AER and an overdraft rate of 16.1% EAR which is not so great. Consumers considering this account should look at the small print carefully. Not only does it come with an annual fee of £155, the in-credit interest rate only applies to the first £1,000 of the balance.”