Big online bank with 3.6million customers to AXE popular feature that could see them miss out on cash
A HUGE online bank with 3.6million customers is set to axe a popular feature from all current accounts.
Starling Bank is to stop paying all of its customers interest on their current account balances in the new year.
As it stands, the digital bank pays 3.25% interest on balances up to £5,000.
This means that a customer with the maximum amount in their account could earn an extra £162.50 a year in interest.
But on February 10, 2025, this perk will be removed entirely from all accounts, reports .
Customers who currently have a sole or joint current account with Starling will continue to benefit from the perk, as well new customers, until this date.
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The bank said it had notified all current customers over the last two weeks.
A spokesperson for Starling Bank said: "We continually keep our products under review and have taken the decision to remove current account interest from February 10, 2025.
"Over the last couple of weeks we have notified all customers of the new current account terms and conditions in the Starling app.
"Customers will still benefit from fee free spending abroad and 24/7 customer service.'"
For customers still wanting to save with Starling, the bank has introduced an easy-access savings account paying 4% interest.
It comes after the Bank of England (BoE) dropped the base rate from 5% to 4.75% earlier this month.
The base rate is the rate charged to high street banks, which is then reflected in mortgages in savings rates.
Starling increased its interest rate to 3.25% in September last year, and it has remained the same since.
The announcement from Starling Bank comes as a number of other banks cut rates on savings accounts.
Nationwide cut rates on a host of its savings accounts for the first time in four years at the beginning of this month.
Rates fell on regular savings accounts, children's accounts, limited access and easy access savings accounts.
Santander recently slashed the rate on its easy-access savings account from 5.2% to 4%.
Chase, CHIP and The Co-operative Bank have also cut rates since the BoE's decision to lower the base rate to 5% in August.
Savings rates will likely fall further in 2025 too, with the BoE's Governor Andrew Bailey signalling yesterday it could be "more aggressive" with cuts.
Sarah Coles, personal finance expert from Hargreaves Lansdown, said: "It’s a great bonus, but as interest rates fall, it costs the bank more to offer it, so they’re likely to have decided it’s not enough of a draw for new customers to justify the expense.
"You can make more interest by managing your current account more closely, and keeping money in a competitive easy access account when you don’t need it.
"Starling has launched one offering 4% alongside the current account, but there’s no need to stick to that. You can make up to 5% elsewhere if you shop around with online banks and savings platforms."
What is the base rate and how does it affect the economy?
NINE members of the Bank of England's Monetary Policy Committee meet eight times each year to set the base rate.
Any change to the Bank's rate can have wide-reaching consequences as it directly influences both:
- The cost that lenders charge people to borrow money
- The amount of savings interest banks pay out to customers.
When the Bank of England lowers interest rates, consumers tend to increase spending.
This can directly affect the country's GDP and help steer the economy into growth and out of a recession.
In this scenario, the cost of borrowing is usually cheap, and the biggest winners here are first-time buyers and homeowners with mortgages.
But those with savings tend to lose out.
However, when more credit is available to consumers, demand can increase, and prices tend to rise.
And if the inflation rate rises substantially - the Bank of England might increase interest rates to bring prices back down.
When the cost of borrowing rises - consumers and businesses have less money to spend, and in theory, as demand for goods and services falls, so should prices.
The Bank of England is tasked with keeping inflation at 2%, and hiking interest rates is a way of trying to reach this target.
In this scenario, the losers are those with debt.
First-time buyers will lose out to cheaper mortgage rates, and those on tracker or standard variable rate mortgages are usually impacted by hikes to the base rate immediately.
Those on a fixed-rate deal tend to be safe if they fixed when interest rates were lower - but their bills could drastically increase when it's time to remortgage.
The cost of borrowing through loans, credit cards and overdrafts also increases when the base rate rises.
However, the winners in this scenario are those with money to save.
Banks tend to battle it out by offering market-leading saving rates when the base rate is high.
Should you switch?
If you're a Starling customer with one of the affected savings accounts, you might be considering switching to another bank.
You can check savings rates on price comparison sites as this will help you filter through the best deals for you.
In any case, make sure you are checking deals regularly as banks often raise and lower their interest rates and to make sure you pick the right deal to suit your needs.
You don't want to take out a fixed-rate account if you are someone who might need to withdraw money in an emergency.
This is because most fixed-rate accounts charge you fees for withdrawing before the end of your agreed term.
Those with regular savings accounts often get the best rates, but there is usually a maximum amount you can put in each month which limits the amount of interest you can make on top.
The average easy access saving rate is currently 2.97%, according to Moneyfacts.
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Think before you switch from Starling to another bank or building society purely based on interest rates though.
For example, you benefit from other perks such as fee free spending abroad.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.