Why earning Avios via a Tesco current account is now more attractive

Back in June 2014 Tesco Bank launched its current account.  There was a lot of hype about the account at the time but Tesco was, probably correctly, keen to play it down whilst the IT bedded in.

I expected that, after a few months, there would be a major push with a substantial bonus for moving your banking across.  That has not happened.

M&S Bank and First Direct have long standing offers of £100+ bonuses for new customers.  The current M&S offer is actually £170 if you keep your account for two years.  It seemed logical to me that Tesco Bank would offer 10,000 Clubcard points (24,000 Avios or 25,000 Virgin miles) at some point.  But, apart from a couple of very tightly targetted trials, nothing has happened.

Instead of a ‘big bang’ sign-up deal, Tesco Bank has been quietly finessing the day-to-day benefits of the account.  The latest changes, announced this week, mean that it is worth a look.  This is especially true if you are a heavy Tesco shopper.

(PS.  I have run this article across both Head for Points and Shopper Points today.  I apologise to those of you who get emails from both sites and will receive it twice.)

Tesco current account

Here is the Tesco Bank website promoting the current account.

As of a year or so ago, you no longer need to pay in £750 per month in order to get free banking.  The £5 monthly fee for dormant or low value accounts has been removed.

How do you earn Avios with the Tesco current account?

You will earn Clubcard points on all of your debit card transactions:

1 point per £1 spent in Tesco (2.4 Avios per £1 / 2.5 Virgin miles per £1)

1 point per £8 spent elsewhere (0.3 Avios per £1 / 0.31 Virgin miles per £1)

The ‘1 point per £1’ spent in Tesco is a new benefit, launched this week.  If you are spending £100 per week in Tesco, which appears to include Tesco Fuel, you would earn 12,480 Avios or 13,000 Virgin Flying Club miles per year if you put all of this spending onto your debit card.  That is on top of the base Clubcard points you would receive irrespective of how you pay.  This is a pretty attractive deal.

Even the ‘1 point per £8 spent elsewhere’ is attractive.   Whilst you would be better off in most circumstances using a loyalty credit card instead, there are places where you are expected to pay a fee for using a credit card.  Earning 1 point per £8 and not paying any sort of fee may work out better than using an American Express card or an alternative miles MasterCard or Visa which would incur a fee.

There is ‘small print’ attached to the ‘1 Clubcard point per £8 spent on the debit card’.  All payments to ‘banks and financial institutions’ are exempt.  This means that you cannot pay your mortgage, pay off a credit card bill or pay money into a savings account.  It DOES work with payments to the Inland Revenue but that is not something that most people can benefit from.

As with the Tesco Clubcard MasterCard, it is worth noting that debit card spending is rounded down to the nearest multiple of £8.  A £7.99 lunch payment will earn you exactly zero Clubcard points.  This is a major deterrent unless you are using the card for large transactions.

And a subsidised interest rate

Current account holders receive 3% interest on the first £3,000 in the account.

Whilst there is no sign-up bonus, the 3% interest paid on sums of up to £3,000 is – given current interest rates – an incentive to get an account.  You would receive £90 of interest per year, triple the rate of a decent instant access savings account.

Foreign exchange use of the debit card incurs a 2.75% fee.  This is market level, I admit, but Tesco could have made this free in order to score some marketing points.

And these benefits are guaranteed

Tesco Bank is guaranteeing to retain both the 3% interest rate on £3000 balances and 1 Clubcard point per £1 spent in Tesco until at least 1 April 2019.

If you switch your banking, you are not at risk of the two most attractive benefits being taken away.

However, you do NOT need to close your existing current account to open a Tesco Bank account.  You can also open two accounts per person – so a couple could shelter £12,000 at 3% interest.

Conclusion

The Tesco Bank current account was not competitive when it launched.   Dropping the monthly fee for low earners and introducing the new Tesco earning rate has improved it.  If we’re honest, it has also benefitted from competitors reducing the benefits on their products.

The lack of a moving bonus remains problematical.  It would be a disaster to open an account only for Tesco Bank to offer 10,000 Clubcard points the following week.  I doubt they would offer both a sign-up bonus and 3% on your first £3,000, however, and in the long run the ‘3% on £3,000’ – which has been in place since the account launched almost three years ago – would be more valuable unless interest rates elsewhere improve.

Is this product worth the trouble of moving your current account to Tesco Bank?  For me, I’m not sure.

I have VAT, PAYE and income tax payments which I could pay fee-free and earn 0.3 Avios per £1, but personally I would prefer to pay the 0.4% HMRC credit card fee and use a more generous MasterCard or Visa card.

I don’t spend a lot in Tesco – perhaps £5 per week at our Tesco Express – so the new ‘1 point per £1 on the debit card’ isn’t worth much.  And it would mean I could no longer send our 9-year old out to do the shopping as I doubt the staff would let her pay with my debit card!

I would have no problem keeping a £3,000 balance on the account, but £90 of annual interest (which is £60 more than I would get elsewhere) – less income tax – is not a big enough incentive. That said, most people would be under the £1,000 tax free interest cap.  If I was under the cap, opening four accounts between the two of us and getting £360 tax free interest would be more interesting.

For some people, however, this package may well stack up.  If you’re sick of your current account provider it may be time to switch – although, for clarity, you can keep your old account open and still take advantage of this deal.

(Want to earn more Avios?  Click here to visit our home page for the latest articles on earning and spending your Avios points and click here to see how to earn more Avios from current offers and promotions.)

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Comments

  1. Hi,

    I am using Tesco Bank Current Account since Nov last year and was offered 2500 clubcard points to sign-up (I haven’t got them yet but in chasing), which was probably a deal for some people.

    You also get 1 extra bonus point for £4 tesco spend so 5 points instead of 4!

    Since then, I have been getting 1 clubcard point for £1 spend and 1 clubcard point (including petrol) and 1 point for £8 non-tesco spend so it is not new (for me anyway).

    Just a heads up, it doesn’t give points for travel money or money/wire transfers via Western Union or other similar websites.

    • James67 says:

      What is new is that you will be getting 8 cc points/£4 spent in store and paid with the debit card, an improvement on the 5 you get now. As an existing customer you will get this along with new customers from 1st April. The 3% interest rate will also become guaranteed for 2yr which is very attractive given rates on instant access are typically under 1%.

    • How are you chasing up the 2,500 points, as I didn’t get them either and there seems to be no way to contact them apart from phone or writing a letter!

      • I’ve called them twice and they gave me 48hrs to come back regarding the resolution. Will give them a call tomorrow again if they didn’t get back by then.

  2. Is online gambling classed as a payment to a financial institution?

    • Sandgrounder says:

      Gambling has its own MCC, would be interesting to know how they treat it in practice.

    • Maybe not but they can always add on a cash charge for gambling transactions like some banks do.

    • The Urbanite says:

      No points for transactions at gambling merchants on the Tesco Debit card.

  3. So if I spend £100 on my BA amex card I will get 150 Avios plus 100 base CC points @ 240 Avios = 390 total
    However if I I spend £100 on my Tesco Debit card I would get 240 Avios points. PLUS base points of 100 CC points too? = 240 Avios so total 480. So a difference of 90 Avios more per £100 spend. Is my maths right??

    • Genghis says:

      The maths looks right to me.

      If spend is limited, spend on your BAPP also gets you 1% closer to your 241 voucher, which if you take a CW flight of say 150k avios could be worth another 1,500 avios. But if you easily meet your spend targets on other cards and do some ‘regular’ ongoing spend, then I think diverting your Tesco spend to this Tesco debit card makes sense.

      • Thanks. Yes Im a heavy Tesco user and my spend does go towards my 241. I will have to do some more maths to see if I could still reach my bonus spend AND use my Tesco C/A for tesco.

        • James67 says:

          Take care though, even with a 241 the actual return on converting cc points to avios might be a lot less than you imagine. You might be better off buying two miles-earning revenue tickets and saving cc points for something else.

      • But can’t you use debit card as Clubcard to get enhanced earnings rate but then still pay with BAPP (or AN Other card)

  4. Sandgrounder says:

    Does the current account credit points based on Tesco spend on your statement, or does it work as a special rate clubcard? If the former, will cashback at the till boost your points, if the latter, can you double dip with the ‘use only as clubcard’ trick? Or is it more advanced than that?

    • Sandgrounder says:

      Or does at the till cashback show up on your statement? I can honestly say I have never used the facility?

  5. Has the wording changed on the Tesco website this afternoon? I thought when I read it this morning it said 1 clubcard point per £1 spent. It now states 8 per £4 spent implying if you spend £7 you only get 8 clubcard points and not 14. Have I missed something? Wording below

    “Your debit card is also your Clubcard. Between now and 1 April 2017 you’ll earn five points for every £4 spent in Tesco. From 1 April 2017 to 1 April 2019 you’ll earn eight points for every £4 spent in Tesco. You’ll get one point for every £8 spent elsewhere. “

    • Genghis says:

      This is the wording that I read yesterday. So from April 17, the 8 CC points per £4 Tesco spend is made up of 4 spend points and 4 normal earning clubcard points (that you earn regardless of payment method). This kind of works out at 1 cc points per £1 on the spend, assuming you shop in £4 chunks.

      • It’s done in £1 chunks rather than £4 chunks according to the page about how points are earned:
        “From 1 April 2017 to 1 April 2019 we guarantee you will be awarded one point per £1 spent in each card purchase transaction (£1 minimum) within Tesco. This is in addition to your normal Clubcard points.”
        http://www.tescobank.com/current-accounts/rewards/

        • Also:
          “From 01/04/17 to 01/04/19 we guarantee you will be awarded one point per £1 spent in each card purchase transaction (£1 minimum) within Tesco and one point awarded per £8 spent in each card purchase transaction (£8 minimum) outside Tesco.”

        • Genghis says:

          Thanks for clarifying Rich. I’m sure that’s different to what I read yesterday.

          • James67 says:

            I think you both read correctly, just different pages. My understanding is 1cc/£ for paying in Tesco with debit card but base earnings on clubcard still tied to the £4 issue so a £3.99 spend earns 3 cc points from debit card only but a £4 spend earns 8 cc points (4 base + 4 for debit card).

      • Ok, I must have misread. With the need to focus on £4 multiples the card looses It’s appeal. Even if I were to spend £400 on shopping and £100 on fuel per month in exact £4 multiples, the additional I would earn per year over the BA premium card would be 6840 (I think)

        – Shopping – 400 X 12 X 0.9 = 4320 (difference of 0.9 between the 1.5 miles on the BA card and the 2.4 avios per clubcard point)
        – Fuel – 0.5 X 2.4 X 100 X 12 + 100 x 12 x 0.9 = 2520 (assuming debit card is used as clubcard and earns 1 rather than 0.5)

        This is probably easier to do for fuel but not for the irregular shopping payments. I might do it just for this and the additional credit interest

  6. I got 10,000 CCP when I switched last year.

  7. Von Schmallhausen says:

    Not as good as Lloyds Avios Amex at 2.5/£, plus no upgrade voucher or Anex offers

  8. I opened a Tesco account to use as a savings account since it’s one of very few “easy” 3% accounts (and you can have two of them to get 3% of £6k). Just used it today for a payment to HMRC – great suggestion!

    I am actually very happy with Tesco Bank. The interest rate is good and guaranteed – but also the clubcard points, the website, app and customer service are all surprisingly good.

  9. Just went to apply and have the following message:

    In the last week, the feedback from existing customers has been brilliant, and we are also delighted by the unprecedented demand from new customers applying to take out accounts with us.

    In order to best serve our existing customers, we have decided to pause accepting new applications for the time being. In the coming weeks, we will let customers know when they can apply again for the Tesco Bank Current Account.

    • Ah likewise… Rob – would appreciate it if Shopperpoints could announce when this is back up and running again for those of us that missed the boat? :)

  10. Thanks for this- just added my Tesco Debit Visa card to BINK to get the extra Tesco points there too
    Leo

  11. Oops error I mean PayQwiq

  12. It seems tesco has paused taking any more applications for its current account! Looks like it couldn’t cope with the demand from Hfp readers! 😛
    http://www.tescobank.com/current-accounts/