Credit interest cuts hit low earners

All banks have fallen on hard times in recent months, so it's no surprise that each of them has been busy cooking up new ways to recoup lost revenues. Mortgage fees have been rising, credit interest has been falling – all of which is understandable in the context of the worst banking crisis in living memory.

In the past, however, whenever the banks have been trying to squeeze their customers, it's always been a relief to watch the biggest building societies taking a more lenient line. As mutual companies – who don't have to answer to the demands of shareholders – they can plough their profits back into the business, sacrificing a slice of their margins in the interest of treating their customers fairly.

Nationwide, the UK's biggest building society, has always led the way – whether it's been campaigning against the introduction of cash machine charges, or giving its credit card customers the right to pay off their highest interest-bearing debt first.

So it was particularly disappointing to discover this week that the credit crunch seems to have persuaded Nationwide to part with its principles.

As of 1 August, customers of Nationwide's Flex current account, who earn between £1,000 and £1,500 a month, will see their credit interest rate cut from 3.5 to 2 per cent – a move which, in effect, allows Nationwide to cut their costs at the expense of their lowest earning customers. Furthermore, customers of Nationwide's Cash Card accounts – who earn more than £1,000 a month – will see their interest almost completely wiped out, as the rate comes down from 3.5 to just 0.1 per cent.

I should say that I've never been a massive advocate of current account interest. It's always struck me that the average person will probably see most of their salary eaten up by their rent or mortgage at the start of the month, meaning there's never much left in their account to earn interest on anyway. But for some people, the extra few pounds a month is something they value – and in the case of Nationwide, it may perhaps be the reason they chose to open account with them in the first place.

Although Nationwide nonchalantly claims that the changes to its accounts will only cost most customers £1.25 a month, for some it will be more – especially those who were only able to qualify for one of the bank's basic Cash Card accounts, where interest has now been all but abolished. I understand that banks have got to find a way of cutting costs during what are difficult times, but surely there are other customers they could take from.

For Nationwide, however, it all makes great commercial sense. The cost-savings will be twofold. Not only do they save on the interest that they have to pay to lower earning customers, but there's also a chance that they'll scare some of them away to another bank. Although it might sound counter-intuitive to drive away your customers, Nationwide knows that there's little value to be gleaned from low earners, as they're less likely to have any spare cash to spend on other Nationwide products.

Sadly, this is the way that most banks are thinking. A couple of years ago, First Direct started charging customers a fee of £10 a month if they paid less than £1,500 a month into their account – a move deliberately engineered to scare off unprofitable and poorer customers. But while you might expect such behaviour from a multi-national FTSE 100 company such as HSBC, which owns First Direct, I never thought I'd see Nationwide stooping so low.

j.daley@independent.co.uk

Read the Spending Power blog at www.independent.co.uk/spendingpower

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Suggested Topics
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Editor-in-chief - Financial Services - City, London

    £60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Guru Careers: Management Accountant

    £27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

    Guru Careers: Project Manager / Business Analyst

    £40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

    Day In a Page

    General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

    Miliband's unlikely journey from hapless geek to heart-throb

    He was meant to be Labour's biggest handicap - but has become almost an asset
    General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

    On the margins

    From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
    Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

    'This is the battle of young Egypt for the future of our country'

    Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
    Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

    Why patients must rely less on doctors

    Improving our own health is the 'blockbuster drug of the century'
    Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

    Flesh in Venice

    Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
    11 best anti-ageing day creams

    11 best anti-ageing day creams

    Slow down the ageing process with one of these high-performance, hardworking anti-agers
    Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

    Juventus vs Real Madrid

    Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
    Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

    Ashes series looks a lost cause for England...

    Whoever takes over as ECB director of cricket, says Stephen Brenkley
    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power