A cheap overdraft. Clubcard points.. but a £5 monthly fee: Should you sign up to the new Tesco bank account?

Tesco Bank has launched its first current account - so how does it measure up to its rivals? Victoria Bischoff reports.

TESCO BANK ACCOUNT

First the cons - because these could prove a real hindrance to many potential customers, particularly the less wealthy. The account charges you £5 a month if you don’t pay in £750 a month. On top of this, it can only be opened online or over the phone.

Once your account is up and running, you will be able to pay in money at customer service desks in 300 of Tesco’s 3,378 stores up and down the country. Tesco says 90 per cent of its customers are within a 30-minute drive of one of these stores.

Perks: One major attraction on this account will be the Tesco Clubcard points you get for using its debit card

Perks: One major attraction on this account will be the Tesco Clubcard points you get for using its debit card

On a more positive note, its overdraft charges are fair. You pay an interest rate of 18.9 per cent and if you go in to your overdraft without permission and have a payment bounced or authorised (because you have insufficient funds) you’ll face a flat fee of £5 per transaction.

But charges are capped at £50 a month. And, you’ll be sent a text if you do go overdrawn and given until 5pm that day to pay in funds to avoid the charge.

One major attraction on this account will be the Tesco Clubcard points you get for using its debit card. You earn one point for every £4 you spend in Tesco or one point for every £8 you spend elsewhere.

One Clubcard point is worth 1p in Tesco vouchers - so you are getting 0.25p for every pound you spend in Tesco or 0.125p for every £8 you spend in other shops. That’s not particularly generous, though - even the Tesco credit card pays more points and many credit cards offer perks of up to 2 per cent.

Customers do, however, earn a decent 2.96 per cent on balances up to £3,000 in the account.

 

SANTANDER 123

The leading light for current accounts, particularly for perks, is Santander’s 123 account. It pays 1 per cent on balances above £1,000; 1.98 per cent above £2,000; and 2.96 per cent between £3,000 and £20,000.

But it’s the cashback which is truly eye-catching. You get 1 per cent for every £1 you spend by direct debit on water bills, council tax and any Santander mortgage (up to £1,000 of the monthly repayment); 2 per cent on gas and electricity bills; and 3 per cent on phone, internet and TV bills.

There is a £2 monthly fee - but this is less than half that charged by Tesco. You must also pay in £500 a month and set up at least two direct debits. On top of this Santander has more than 1,300 branches.

HALIFAX

Halifax's Reward Account also has very generous perks. Customers receive £5 every month they stay in credit, plus a one-off cash payment of £100 when they first switch. By contrast, to earn £5 of perks in the Tesco account you’d have to spend £2,000 a month in store, or £4,000 elsewhere.

 
Best Current accounts
Chosen by This is Money
Blue World Map Credit Card
Provider Incentive
M&S; Bank £100 voucher More
The Co-op Cashback More
Nationwide Travel cover More
Santander 3% cashback More
Halifax £5 a month More

At Halifax you must pay in £750 a month and have at least two direct debits. Halifax Reward Account customers can use any of its 800-odd branches, and also apply for a Clarity credit card which pays £5 a month if you spend more than £300.

You only qualify for this added perk if you pay £1,000 a month into your current account.

M&S BANK

If you want an example of a current account very precisely matched to its customers’ needs, M&S is it. The M&S Bank perks seem to be honed to the average Marks & Spencer shopper. Its fee-free current account, which launched last month, rewards customers with one point for every £1 they spend in store.

Each point is worth 1p and you will receive vouchers for the points you’ve earned quarterly to spend on more M&S goods. You also get a £100 M&S gift card when you first switch. There is no interest on the account, but there is an automatic £500 overdraft.

The first £100 of this is interest-free, with an annual interest rate of 15.9 per cent thereafter. The only problem is that M&S has just 29 banks in branches located up and down the country, though they are open as long as the shop is - often well into the evening and on Sundays.

TSB

For decent interest on a current account, you need to look at TSB’s Classic Plus account which pays 4.89 per cent on the first £2,000 in your account.

TSB has 631 branches, but while you can open the account face-to-face, to be eligible for this deal you must pay £500 into your account every month and register for online banking with paperless statements.

The comments below have not been moderated.

The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline.

By posting your comment you agree to our house rules.

Who is this week's top commenter? Find out now