Egg hatches plan to change spending habits

A new hybrid account offering a payment card which functions both as a credit and debit card has been launched today by internet bank Egg.

Billed as "the UK's first ever dedicated spending account" Egg Money is intended as a home for a person's disposable income, rather than the cash needed for their regular monthly commitments.

Customers will continue to have a separate current account, into which they will receive their salary and from which they will pay their mortgage or rent and other bills, but other purchases will be made from the Egg Money account.

This means that each month they will need to "load up" the new account, either by a regular direct debit or a one-off payment with their debit card.

A debit card on the Egg Money account will also function as a cash card, allowing free withdrawals at cash machines, and a credit card when no money is left in the account.

Purchases made with the card will earn cash back of 1% - increased to 2% between November 16 and December 10 this year - while account balances will earn 4%.

When the card is used for credit, the maximum borrowing will be capped at twice the customer's monthly income after tax. The interest rate on this borrowing will be 6.9% APR.

Egg has designed a spending calculator to help customers work out how much of their take-home pay they need for bills and how much is available to spend. This balance is the sum it suggests can be paid into the account.

Customers can check how much they've spent online or via a free weekly text message service.

Announcing the new account, Egg's chief financial officer, Mark Nancarrow, said: "Current accounts have become a melting pot for all our money matters, but they do not give us an accurate picture of where we stand financially at any one time.

"Liberating our spending money from the more mundane things in life would not only save us money, but would enable us to understand, control and budget more efficiently. It's time to change how we spend."

To back up its claim Egg revealed the results of a survey into people's experiences of running a current account.

It found that almost two-thirds (62%) of those questioned did not know how much money they had in their account and that almost a third (29%) had been hit by a bank charge for unauthorised borrowing within the past 12 months.

One in three of those questioned said they believed separating bills from spending money would help them manage their money more effectively.

Although the new Egg account fulfils that need, it was described a "product of two halves" by Richard Mason, director of credit cards at price comparison site Moneysupermarket.com.

"Bundled products like this are great for those who value convenience, but savvy consumers looking for value for money should do better with stand-alone current accounts and credit cards that are market leading" he said.

Anyone prepared to shop around for separate accounts could find better deals, he added, with, for instance, Alliance & Leicester's premier current account which offers 5% on balances, compared with Egg's 4% or the Morgan Stanley Standard credit card, which pays 2% cash back at all times, not just for three and a half weeks.

But he added: "Egg Money is a strong product proposition. Though it is not market leading in all aspects, it does offer consistently good rates and is likely to suit those who may end up dipping in and out of both spending and borrowing facilities."