Money Insider: Nationwide's price rise masks a customer focus

Andrew Hagger
Saturday 07 August 2010 00:00 BST

Debit cards issued with Nationwide Building Society's FlexAccount have been a hugely popular, low-cost option for overseas travellers for many years. However, changes are afoot.

From 1 November, the charge for using a Nationwide debit card abroad is rising to 2 per cent for all transactions, plus an extra £1 fee for cash withdrawals. At present, the only charge is a 1 per cent transaction charge in countries outside the Visa European region.

Although this is a steep increase, the charges remain lower than the fees, typically 2.75 per cent to 2.99 per cent, that you would incur with current accounts from the main high-street banks.

So is this just another high-street financial provider looking to boost its bottom line at the expense of its customers? While it will drive additional revenue for the UK's biggest building society, it is worth looking at the reasons why it is so unpopular.

Firstly, Nationwide's profitability is being hit to the tune of about £450m a year because it is sticking to its guarantee that the standard variable rate (SVR) charged on its mortgages would never be more than 2 per cent above the Bank of England's base rate. Since March 2009, therefore, customers coming to the end of fixed-rate or discounted deals have found themselves on a variable rate of just 2.5 per cent.

As you would expect, most of them are content to stay there until they see any hardening evidence that the base rate will increase. The second issue Nationwide is facing is that although it has about five million FlexAccount customers, only a quarter of these accounts are used as a main current account. The rest just make use of the low-fee debit card once or twice a year when they holiday overseas.

However, with both these issues, Nationwide has tried to do the best for its loyal customers. It could have followed a controversial move by the Skipton Building Society and cancelled the SVR guarantee owing to "exceptional circumstances" – but it didn't. Instead, it kept its promise of offering base rate plus 2 per cent for existing customers, and introduced a new SVR of 3.99 per cent for all new customers taking out a mortgage from last April.

Nationwide customers who use the FlexAccount as their main current account will quite rightly feel aggrieved that the cost of using their card abroad is suddenly going to increase. However, to soften the blow, they will now receive free multi-trip European travel insurance, worth up to £80 on a joint account.

Nationwide might be the country's biggest building society but, even when faced with some of the most testing times in its 162-year history, it remains true to the mutual spirit of trying to reward customer loyalty.

Northern Rock starts Little Rock for the under-16s

Child trust Funds were one of the first casualties of the Government's cost-cutting strategy, and it was a hammer blow to the children's savings market when this popular scheme was axed.

However, quick off the mark and recognising a new opportunity, Northern Rock launched its "Little Rock" fixed-rate bond this week.

Accounts for under-16s can be opened in branches or by post from as little as £1. The maximum balance limit is £20,000. As with bonds in the adult savings market, no withdrawals are permitted before the fixed term of the bond expires. However, with an excellent interest rate of 5 per cent gross, this three-year account is likely to attract serious interest from parents seeking a home for their children's cash.

Tesco Clubcard tops 0 per cent table

By extending to 13 months its introductory offer of 0 per cent interest on purchases, Tesco Bank's Clubcard now sits atop the best-buy table, nudging Sainsbury's Finance and Virgin Money – both of which offer 12 months at 0 per cent – into joint-second place.

If you use the Tesco card wisely, you can save a packet in interest charges. For example, a £1,000 purchase on a Tesco card with minimum 3 per cent repayment each month will save you £161.43 in interest over the 13-month, interest-free deal, compared with the standard rate of 16.9 per cent APR.

The trick is to be disciplined and ensure you have money set aside to clear the balance at the end of the introductory term, otherwise interest charges will wipe out any Clubcard rewards you have earned.

If it's an interest-free balance transfer card you're after, NatWest and RBS have increased the terms on their Platinum credit cards to a market-leading 16 months.

Even though the 0 per cent credit-card market is starting to pick up, lenders are still licking their wounds from bad debt write-offs, so you will need an A1 credit history to bag any of these best-buy deals.

Andrew Hagger is a money analyst at

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