Interest rises in battle of current accounts

The Nationwide building society has sent a fresh challenge to banks in the war to win your custom.

Would you switch current accounts for the promise of 5 per cent interest? Nationwide hopes you will, as it yesterday began offering that rate on its FlexDirect account.

The move sends a challenge to current account providers to match or better the offer. Banking analyst Andrew Hagger of Moneycomms said: "Because savings rates are so poor, I think we may see many more examples where credit interest is used as the carrot to tempt people to switch bank accounts."

Yesterday's revamp of the account by Nationwide makes it a far more attractive proposition than when it first launched last November.

"With savings rates in free fall, the 5 per cent credit rate for year one is a clever and well-timed move and will undoubtedly appeal to those with a bank account paying nothing," said Mr Hagger.

But, as you can see from our graphic, you can already get better deals elsewhere. Halifax's Reward account, for instance, pays more interest than Nationwide on balances of £1,000 or below.

Even more crucially for those tempted by Nationwide's new offering is the fact that it ends after just a year. Then the rate slips back to just 1 per cent, which means returns then become somewhat paltry and hardly worth bothering with.

Savings expert Anna Bowes of says the move is good in the short term for savers, but that the account in itself is gimmicky and doesn't offer enough.

"At a time when the rates on savings accounts are tumbling, the headline rate on this account certainly draws attention," she said. "But it's a bit of a gimmick really as you'll only be able to earn the fantastic 5 per cent rate on £2,500."

One good point is that the same high rate is paid on balances from £1 but the maximum interest you can earn in a year is £125 before tax, and that's only if you maintain a £2,500 balance for the whole year.

"And as there's no interest to be earned on balances higher than £2,500, it's a bit fiddly to make the account work to its optimum as a savings account," Ms Bowes said.

If you're in the unlikely position of regularly keeping more than £2,500 in your current account then you'll get better returns with Santander's 1 2 3 account.

While it pays no interest on balances less than £1,000, it adds 3 per cent to balances of £3,000 and above. However it does have an annual fee of £24, which is a major drawback.

It's also crucial when considering different current accounts to look at charges. Nationwide has improved the terms on its FlexDirect by cutting the daily overdraft fees from £1 to 50p per day. But daily fees can work out more expensive than monthly charges, points out Andrew Hagger.

"Although the daily fee tariff is becoming more common and is easier to understand, it does work out expensive for small overdrafts," he said.

For example a 50p charge for a £500 overdraft for one day works out at more than 36 per cent as an interest rate. But for larger overdrafts the tariff is better value with 50p for a £2,000 overdraft working out at less than 10 per cent in interest terms.

If you're really keen to get credit interest on your current account then Santander's 1 2 3 account still looks the best prospect. The £2 monthly fee can quickly be offset by the cashbacks paid on direct debit payments.

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

Suggested Topics
Danny Cipriani of England breaks clear to score his second try
Life and Style
New research says leaving your desk can help you to avoid serious illness
Arts and Entertainment
tvSPOILER ALERT: Like a mash-up of 28 Days Later, Braveheart, The Killing and Lord of the Rings, this GoT episode was a belter
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Payments Operations Assistant

    £23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

    Recruitment Genius: Telephone Debt Negotiator

    £13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

    Guru Careers: Communications Exec / PR Exec

    £25 - £30K: Guru Careers: We are seeking a highly-motivated and ambitious Comm...

    Guru Careers: Pricing Analyst

    £30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

    Day In a Page

    On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

    On your feet!

    Spending half the day standing 'reduces risk of heart attacks and cancer'
    Liverpool close in on Milner signing

    Liverpool close in on Milner signing

    Reds baulk at Christian Benteke £32.5m release clause
    With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

    The big NHS question

    Why are there so few new GPs when so many want to study medicine?
    Big knickers are back: Thongs ain't what they used to be

    Thongs ain't what they used to be

    Big knickers are back
    Thurston Moore interview

    Thurston Moore interview

    On living in London, Sonic Youth and musical memoirs
    In full bloom

    In full bloom

    Floral print womenswear
    From leading man to Elephant Man, Bradley Cooper is terrific

    From leading man to Elephant Man

    Bradley Cooper is terrific
    In this the person to restore our trust in the banks?

    In this the person to restore our trust in the banks?

    Dame Colette Bowe - interview
    When do the creative juices dry up?

    When do the creative juices dry up?

    David Lodge thinks he knows
    The 'Cher moment' happening across fashion just now

    Fashion's Cher moment

    Ageing beauty will always be more classy than all that booty
    Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

    Health fears over school cancer jab

    Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
    Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

    'I forgive everyone, but I don't forget'

    Fifa president Sepp Blatter issues defiant warning to opponents
    Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

    Weather warning

    Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
    LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

    High hopes for LSD

    Meet the volunteer users helping to see if it cures depression and addiction
    German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

    Saving Private Brandt

    A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral