First Direct stops paying interest, citing lack of interest

First Direct has stopped paying interest on its current accounts.

On 1 November, customers with the First Direct Account, which currently pays 2 per cent, will be switched to its new 1st Account. At this point they will stop receiving interest.

The bank says many of its customers will be better off as they will be offered a £250 interest-free overdraft.

At the same time, the bank is upping rates on its savings accounts.

Chris Pilling, First Direct's chief executive, said: "A staggering 96 per cent of our customers told us that credit interest wasn't an important factor in choosing to bank with First Direct. And almost 70 per cent didn't know the rate of interest on their current account."

Last November, First Direct, part of the HSBC group, sparked outrage when it announced it would levy a £20 fee on current account customers paying in less than £1,500 a month. At the time, it was seen as potentially the start of an industry-wide move to introduce charges just for running a current account.

In the event that new customers wish to open a 1st Account, there is a bizarre "incentive". If, after six months of signing up, they are unhappy, they can move their money from First Direct and claim £100 – a reward for disloyalty that should at least make up for the lost interest.