The last 5% savings deal goes up in smoke: Nationwide cuts its FlexDirect current account interest to 2% – and 22 other rates are also hit
- FlexDirect paid 5% interest for a year on balances of up to £2,500
- It helped the building society gain nearly 550,000 switchers in 6 years
- It will be cut by three-fifths while existing customers are also hit
- It’s part of a mass slashing of savings rates on the back of base rate cuts
The last 5 per cent savings deal in Britain has gone up in smoke, with Nationwide Building Society slicing the interest rate on its FlexDirect current account to 2 per cent from May as part of a mass decimation of its savings rates.
The account currently offers 5 per cent on balances of up to £2,500 for the first 12 months, but will pay 2 per cent on balances of up to £1,500 from next month.
Existing customers outside of this 12-month introductory window will see the rate on their savings cut by three-quarters to 0.25 per cent from July. They currently earn 1 per cent on balances up to £1,500.
Up in smoke: Nationwide’s FlexDirect account was the last 5% savings deal left. Now it too is gone
Andrew Hagger, founder of personal finance site Moneycomms, said: ‘It was only a matter of time, the only surprise is that it took this long before being axed; the rate stood out like a sore thumb.
‘Providers don’t want our cash at the moment whether it be via savings accounts or current accounts paying credit interest. I don’t think too many people will lose sleep over it, after all it was little more than a switching gimmick.’
Britain’s biggest building society wielded the axe on FlexDirect and 22 other savings accounts after a pair of Bank of England base rate cuts eight days apart last month took bank rate to its lowest-ever level of 0.1 per cent.
The base rate determines what banks offer borrowers and savers, as it is how much interest the Bank of England pays banks to hold money with it.
While Nationwide said the majority of its accounts would be cut by less than the 0.65 percentage fall in the base rate, its most generous accounts have been slashed by a much more than that.
As well as FlexDirect, Nationwide is cutting the interest rate on its Junior Isa and Future Saver from 3 per cent to 1 per cent, its regular saver from 3.5 per cent to 1 per cent and its Help to Buy Isa from 2.5 per cent to 1 per cent.
Nationwide is slashing rates on 22 savings accounts in response to a pair of Bank of England base rate cuts. However only four of these accounts were available to new savers
Its tax-free loyalty single access Isa is being slashed from 1.4 per cent to 0.25 per cent, and issue 3 of its single access Isa from 2 per cent to 0.25 per cent.
The vast majority of these 22 accounts are those held by existing customers, with only four remaining on-sale and all but one of those paying less than the previous base rate of 0.75 per cent anyway.
The building society’s savings prize draws are also unaffected, even if the interest rates on its savings accounts are being slashed.
Nationwide gained 548,000 current accounts since 2014, likely on the strength of its FlexDirect switching offer
Current account interest purge
The cut to FlexDirect is a blow for the current account switching market, as it is yet another nail in the coffin for bank accounts with benefits.
Already this year cuts to in-credit interest have been announced by Santander, Starling and TSB, while upfront cash switching offers from First Direct, HSBC, NatWest and Royal Bank of Scotland have also disappeared in recent weeks.
It meant Nationwide’s FlexDirect 12-month interest offer was really the last attractive switch offer available, as banks grappled with a decade of low interest rates which have got even lower in recent weeks.
The building society was the biggest beneficiary of bank account switching over the last six years, with switch figures compiled by Moneycomms finding it gained nearly 550,000 current accounts since 2014, likely lured in by the 5 per cent interest rate.
Hagger previously told This is Money he expected most switching going forward to be ‘down to one-off sweeteners, or cases where customers have a really poor experience with their existing bank.’
Nationwide previously announced last summer that its FlexPlus packaged current account, which comes with a monthly fee, would no longer pay in-credit interest. It previously paid 3 per cent on balances of up to £2,500.
Nationwide’s Sara Bennison said: ‘We know that this is a tough time for savers, particularly after two cuts in bank rate in quick succession taking it to an historic low of only 0.10 per cent.
‘In order to preserve the long-term sustainability of the society for all our 16million members, we have had to take these decisions on the interest rates we can offer on a number of our accounts.
‘We have tried to remain as competitively priced as possible, with our FlexDirect account, for example, remaining one of the best in the market for credit interest and our savings prize draws helping people into good savings habits.’
THIS IS MONEY’S FIVE OF THE BEST CURRENT ACCOUNTS
Santander’s 123 Lite Account will pay up to 3% cashback on household bills. There is a £1 monthly fee and you must log in to mobile or online banking regularly, deposit £500 per month and hold two direct debits to qualify.
NatWest’s Reward Silver Account offers a £175 switching incentive to new and existing customers as well as insurance cover for European travel. Customers can also earn rewards which can be redeemed as cash or gift cards.
Club Lloyds’s Current Account offers benefits such as cinema tickets, magazine subscriptions and dining cards to current account holders. There is no cost if you pay £1,500 each month, otherwise a £3 fee applies. Must hold two direct debits to earn monthly credit interest.
HSBC’s Advance Account offers £175 cash if you switch to it. The account comes with a £1,000 starting overdraft and 2.75% regular saver account. There is no monthly fee, however you must deposit £1,750 per month into the account.
Nationwide’s FlexDirect account comes with 5% interest on up to £2,500 – the highest interest rate on any current account – if you pay in at least £1,000 each month, plus a fee-free overdraft. Both perks last for a year.
