Banks to Scrap Interest on Current Accounts

By Julia Kukiewicz Editor Monday, 26 July 2010

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INTEREST paid on current accounts could soon become a thing of the past as several of the UK's major high street banks announce that they'll scrap payments to their customers later in the year.

From September 22nd, NatWest and RBS will on longer pay interest on a number of accounts.

These include NatWest's popular Current Plus account, RBS' Royalties accounts and graduate accounts from both banks.

The RBS interest-paying account will be re-named the current account.

The accounts currently pay up to 0.15% interest on current account balances, significantly less than other banks.

For example, Santander current accounts pay 5% interest on balances up to £2,500 for the first 12 months.

In general, though, interest on basic accounts is so low in any case that it's hardly a major factor for consumers when they compare current accounts but, even so, this news will disappoint many.

In a statement to The Telegraph NatWest and RBS justified their decision: "Our customers consistently tell us that the credit interest rate is not the most important feature of their current account as they mainly use it for making day-to-day transactions and not as a home for their savings.

"They tell us the most important thing to them is quality of service."

Stagnant market

According to the Office of Fair-trading, just under 6% of consumers change their current account each year.

That makes current accounts one of personal finance's most stagnant market, a situation that removing one of the incentives for switching is unlikely to change.

As a number of banks also move to increase overdraft fees changes to current accounts all round are doing nothing to enamour an already highly sceptical consumer base.

The way that RBS announced that they'd be cutting interest was also criticised in some quarters.

The announcement was made in a customer mail-out potentially confusing current customers and disadvantaging any potential customers who sign up with the bank in the next few months with the expectation that they'll receive interest on their balances.