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Quarter of banks pay zero interest

12:49pm Monday 6th July 2009

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The number of banks and building societies paying 0% interest on current accounts has doubled during the past nine months, research has shown.

Only 16 current accounts, representing 9% of the market, paid no interest on in-credit balances in September last year when US investment bank Lehman Brothers collapsed.

But since then the number of current accounts offering no interest has soared to 40, or 22% of the market, as banks looked to cut their costs as the credit crunch intensified, according to financial website MoneyExpert.com.

At the same time, 122 accounts, or 68% of the current account market, pay interest of less than the Bank of England base rate, which is currently 0.5%.

The group warned that with banks and building societies cutting the rates they paid on current accounts, consumers were likely to start voting with their feet and switching to better-paying rivals.

Pierre Williams, head of research at MoneyExpert.com, said: "The banks are hurting badly but it's their customers who are paying the price.

"People may not even realise that their terms and conditions have changed. Any account paying under 2% in interest isn't worth considering. People are bound to start voting with their feet if banks persist in being so miserly."

But there are still competitive deals out there. Alliance & Leicester and Abbey both have current accounts paying 6% for a year, after which the rate drops to 1%, on balances of up to £2,500.

But people have to pay in at least £500 and £1,000 a month respectively in order to qualify for the rate.

Lloyds TSB's Classic Account with Vantage is paying interest of 4% on balances of between £5,000 and £7,000, as long as at least £1,000 is deposited each month.

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