Lloyds and Bank of Scotland current customers with less than £4,000 in the bank will see the interest paid on their balance slashed by a third from October.
Those with between £1 and £5,000 deposited currently benefit from a blanket 1.5 per cent interest rate paid on their balance.
Shake-up: The UK’s largest current account provider is slashing the interest rate it pays from October from 1.5% to 1% for those with less than £4,000 in the bank
However, from 1 October those who have between £1 and £4,000 in their account will see the interest rate cut by a third to one per cent.
Meanwhile, those with £4,000 to £5,000 will receive two per cent on this balance – and one per cent up to £3,999.
Bank of Scotland customers are eligible for a Vantage upgrade if you pay in £1,000 each month, have two direct debits set-up and stay in credit.
Club Lloyds has a slightly stiffer requirement; you need to pay in £1,500 a month or else the upgrade will cost you £3 a month, but in return you do get access to Lloyds’ ‘everyday offers’ programme which can give you up to 15 per cent cashback on some debit card purchases, as well as some other benefits like cinema tickets.
A spokesperson for Lloyds said: ‘Our Club Lloyds account and Bank of Scotland Vantage add-on continue to recognise customer loyalty through the associated benefits available exclusively to customers.
‘Along with the changes to credit interest for Club Lloyds, we have enhanced our existing range of lifestyle choices, and continue to offer exclusive mortgage and savings rates available to existing customers.’
Should you go elsewhere?
If you’re a Lloyds or Bank of Scotland customer who stands to see an interest cut and are considering switching, there are a number of accounts that offer a higher rate of in-credit interest, as well as a switch bonus that’ll likely leave you with more money than you’d earn from a 1.5 per cent interest rate anyway.
When it comes to interest rates, Nationwide’s FlexDirect account pays five per cent on balances up to £2,500 for the first 12 months.
If you are recommended by a friend, you’ll also both be in line to receive £100 if you switch through the current account switch service.
TSB’s Classic Plus account pays three per cent on balances of up to £1,500, as well as a £75 bonus each for you and a friend if they’re an existing customer and they recommend you to open an account.
To get the three per cent rate you need to pay in £500 a month, register for internet banking and go paperless.
Santander’s 123 current account pays 1.5 per cent on balances of up to £20,000, the same rate as Lloyds’ offers before the October cut, but this comes with a £5 monthly fee. You need to pay in £500 a month and set up two direct debits.
While the higher ceiling is nice, the £5 monthly fee means that unless you maintain a really large balance, this account is unlikely to be worth it for the interest.
What is likely to be worthwhile, however, are a number of lucrative switching deals with an upfront lump-sum cash bonus that will pay you more than a 1.5 per cent rate will in a year.
The top switch deal is currently offered by HSBC – those who use CASS to open its Advance account will receive £175, in return for paying £1,750 a month – or £10,500 over six months – and maintaining two direct debits.
While Lloyds and Bank of Scotland’s stablemate Halifax doesn’t offer in-credit interest, those who switch to its Reward account will get £135 in two instalments.
You get £50 upfront and a further £85 after six months, as well as a £2 monthly bonus if you stay in credit.
In return, you need to pay in £750 a month, though if you want the £2 bonus it’s £1,500 in the first six months, and maintain two active direct debits.
THIS IS MONEY’S FIVE OF THE BEST CURRENT ACCOUNTS