The 6 per cent AER, or 5.84 per cent gross variable, applies for balances up to £2,500 for 12 months after the day the account is opened. After the end of the period customers will continue to receive a very competitive standard rate which is currently at 4 per cent AER (3.93 per cent gross).

Lloyds TSB customers will be able to choose between a variety of ‘Plus’ current accounts, including Classic, which has no fee, and the Gold, Platinum and Premier. The last three come with a range of benefits such as free AA breakdown cover, travel insurance and mobile phone insurance for a certain monthly fee.

The bank offers a dedicated ‘switching service’ to help new customers transfer their standing orders and direct debits from other banks. If required, Lloyds TSB will also contact employers and pension providers to assure the transfer of funds to and from the new account.

“While many of our competitors are cutting the interest they pay to customers on their current accounts, we’re bucking the trend offering one of the best deals on the market,” Catherine McGrath, director of current accounts, Lloyds TSB commented.

“By upping the interest we pay on our Plus accounts everyone will be able to make the most of their current account balance.”

Customers will also be paid instant interest on the cheques they pay in, and Lloyds TSB is the only bank offering a ‘Save the Change’ facility, which rounds up debit card transactions to the nearest pound transferring the spare change into Lloyds TSB savings accounts of the customers’ choice.

Sean Gardner, director of MoneyExpert.com, welcomed the introduction of the higher credit interest rate: “Lloyds TSB’s 6 per cent interest on its Plus Account reignites the current account price war and represents excellent value for bank customers who keep £2,500 balances in their accounts.”

“Competition in the current account market has been muted recently as banks have held fire so it’s good to see new signs of life. And importantly the offer is open to new and existing customers, so it’s not just a way of winning new business,” Mr Gardner continued.

“Across the market as a whole the average credit interest paid is just 1.94 per cent although if you ignore those paying a miserly one per cent or less then the average is 3.52 per cent. That should be the new benchmark for current account customers.”

However, Samantha Owens, Head of Personal Finance at Moneyfacts.co.uk, deplored that the interest rate is only available for people with sufficient funds: “This move follows the trend of increased competition in the credit interest market, which is of course of benefit to consumers, although it follows the pattern of only offering these interest rates to those who can meet the regular funding requirement.”

“It appears that those who have the funds can benefit from better interest and better overdrafts, but are those that would benefit the most from these deals being excluded from the market?” Ms Owens said.

However, she pointed out that even customers unable to afford regular payments could find a better deal than the standard rate of 0.1 per cent currently paid on standard accounts.

© Fair Investment Company Ltd