TSB Bank has launched a current account that pays 5% interest on balances up to £2,000 ($3,320), the joint highest interest rate on the market.
The TSB Plus account is matched only by Nationwide’s FlexDirect current account, which pays the same rate on balances up to £2,500.
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Director of products Jatin Patel said: "TSB was born to bring more competition to the UK banking market and we’re confident our new TSB Plus Account will do just that.
"This is the first account TSB has launched since returning to High Streets across Britain last year and there is no other bank account out there that gives you more and asks for less.
"On top of that, every penny our customers deposit with us stays right here in Britain, supporting mortgages and loans for other TSB customers which helps communities thrive right across the country."
Whereas the new TSB account pays 5% indefinitely, the Nationwide FlexDirect account offers 5% for only the first year, after which time the rate falls to 1%.
To qualify for the account, customers need to pay in £500 every month.
Despite the attractive interest rate, the account has a number of less attractive features.
Overdraft interest is charged at 19.94% and there is a charge of £6 per month for using an authorised overdraft.
Overseas card use is also relatively expensive, as purchases and cash withdrawals abroad will carry a 2.99% transaction fee plus a flat £1 non-sterling charge for all card purchases.
TSB has been plagued with issues since its split from Lloyds in 2013.
In a recent consumer poll by MoneySavingExpert, TSB came last for customer service.
At the time, CEO Paul Pester said he was not surprised the lender scored poorly:
"Given what we had to put our customers through last year to create TSB, and given the well-publicised failure in Lloyds Banking Group’s systems which affected our customers I’m not surprised some customers are upset: I would be".
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