Nationwide Building Society has announced controversial plans to slash the rate of interest which it pays to its lowest earning customers, as it tries to cut costs amid the ongoing credit crunch.
As of 1 August, customers’ of Nationwide’s Flex account, who earn between £1,000 and £1,500 a month, will see their credit interest rate slashed from 3.5 to 2 per cent. Meanwhile, customers of Nationwide’s Cash Card account, who earn more than £1,000 a month, will see their interest rate cut from 3.5 to just 0.1 per cent. Cash Card account customers who earn between £500 and £1,000 will see their rate cut from 0.5 to 0.1 per cent.
The cuts will come just two months after the building society raised rates on its auth-orised overdrafts, from 9.9 to 12.9 per cent, piling further pain on lower earners who spend more time in the red. David Black, the head of banking at financial consultants Defaqto, said such tactics were becoming commonplace in the world of banking, as providers tried to filter out the lower earning, and less profitable, clients from its customer base.
"Banks are more likely to be able to cross-sell other profitable products to customers earning a reasonable amount, and, in many cases, persuade them to migrate to added value current accounts," said Mr Black.
"It's disappointing to see Nat-ionwide reduce their rates for those current account customers depositing between £1,000 and £1,499 each month and it's also somewhat against the current trend, given that Lloyds TSB recently upped their rate from 4.25 to 6 per cent."
A spokesperson for Nationwide said the cuts would bring the building society more into line with the rest of the market – adding that its Flex account would still pay more interest than most of its main high-street rivals. "The majority of customers paying in more than £1,000 will not be affected by this change as they pay in more than £1,500," she said. "Those that pay in £1,000 a month will only see an average reduction in interest of £1.25 a month.
"These new rates are set at a level that brings us more in line with the market, while maintaining our competitive position – other providers, such as NatWest, RBS, HSBC and Barclays, offer one credit interest rate of 0.10 per cent to many of their customers, the same rate we offer to our cash card customers."Reuse content