Banks raise credit interest rates - but not fast enough

Customers are winning from the banks' current account wars - but too many are still receiving pitiable rates for staying in credit, according to new analysis by MoneyExpert.com.

The independent financial comparison website says the average credit interest rate on all current accounts has risen to nearly two per cent from 1.6 per cent a year ago.

And the proportion of current accounts charging under one per cent for positive balances is falling - 45 per cent now pay a pittance compared with 56 per cent paying one per cent or less a year ago.

However the website claims banks should be doing more to reward customers who stay in credit and says too many current account providers are not offering competitive interest rates for their customers.

Sean Gardner, director of MoneyExpert.com, said: "It's encouraging to see banks getting their houses in order and offering better interest rates for customers with positive balances.

"But let's be honest - almost half of all accounts reward customers who are in the black with less than one per cent annual interest. That's an appalling return. Given there are accounts out there offering ten times that amount of interest, customers should not settle for a raw deal."

According to MoneyExpert.com research only 15 current accounts from six banks offer credit interest of above 5 per cent. Lloyds TSB recently increased its rate of credit interest from 4 per cent to 6 per cent AER on its Plus account. However most high street banks charge just 0.1 per cent interest on at least one of their standard current accounts.

The average rate of credit interest amongst accounts paying over 1 per cent AER is now 3.57 per cent and MoneyExpert.com says this should be the new benchmark for consumers looking to switch current accounts.

Sean Gardner added: "3.57 per cent is a healthy average for accounts paying above one per cent, so every customer should aim to find an account with a similar or higher rate of interest.

"This is of course not forgetting the importance of customer service and other perks - we wouldn't necessarily recommend buying purely on price for your current account as it's not just the account but the bank that you're buying into. You need to be sure it's the right place for your money."