Savers must act now to take advantage of Nationwide’s 5% AER FlexDirect current account before its rate gets slashed to 2% on Friday 1 May.
The account has been a firm favourite with customers for some time, and has been market-leading for months, but as savings rates continue to drop it’s now the last one standing offering such a high return.
And it’s not the only account that’s set for a dramatic interest reduction; several other cuts are due this month, so you might want to rethink your plans if you want your cash to make a return.
The reductions are mainly due to the Bank of England’s decision to cut the base rate to a historic low of 0.1% last month due to the coronavirus crisis. This makes it cheaper for banks to borrow and means they no longer need savers’ cash to cover their loans.
Here, Which? explains how to apply for a FlexDirect account before it’s too late, what the account offers and what other current account rates are set to fall in the coming weeks.
- Read the latest coronavirus news and advice from Which?
How can I beat the FlexDirect cuts?
There’s still time to get the higher rate of interest before Friday’s rate cut – but you’ll have to act fast.
Nationwide says that anyone who starts an application to open its FlexDirect account before 1 May 2020 will have the current 5% AER rate applied for the first 12 months.
After the first year, the rate will drop to 0.25% AER – which will only be paid on the first £1,500 in the account.
Should I get a Nationwide FlexDirect account?
Nationwide has scored so highly in our customer satisfaction survey that it’s a Which? Recommended Provider, but the FlexDirect account may not work for everyone.
Firstly, to qualify for the interest, you must pay in at least £1,000 per month, so those with lower earnings might not be able to benefit.
The interest rate also only lasts for 12 months, at which time it drops dramatically. If you know you’re someone who’s unlikely to remember to switch – or who would rather stay put for longer – you might want to reconsider.
The account is also better suited to those who can maintain a balance of at least £2,500 to make the most of the interest payments.
How much interest will I earn?
It’s worth bearing in mind that, while 5% AER is a much higher rate than that offered by any other account at the moment, the interest is only paid on the first £2,500 in the account.
If you maintain a balance of at least £2,500 over the course of a year – the maximum amount of time you’ll get the 5% rate – you’ll earn around £125 in interest.
Granted, it’s more than you’d be able to earn in a year with the same amount of money in a traditional savings account, but it’s not a life-changing sum.
After 1 May, however, 2% AER will be paid on £1,500 for the first year. This means you’ll have earned just £30 in interest – almost £100 less.
- Find out more: best and worst banks
Other upcoming current account changes
Nationwide isn’t the only big bank slashing its current account rates in May. The table below shows other changes to watch out for.
|Account||Current AER||Upcoming AER|
|Nationwide FlexDirect||5% (for first 12 months on balances up to £2,500)||2% (from 1 May; for first 12 months on balances up to £1,500)|
|TSB Classic Plus Account||3% (paid on balances up to £1,500)||1.5% (from 2 May; paid on balances up to £1,500)|
|Santander 123 Current Account||1.5% (paid on balances up to £20,000)||1% (from 5 May; paid on balances up to £20,000)|
|Starling Bank Current Account||0.5% (paid on balances up to £2,000; 0.25% on balances up to £85,000)||0.05% (from 18 May; paid on balances up to £85,000)|
TSB current account holders can currently earn around £44.40 a year on a balance of £1,500 but once the rate is reduced to 1.5% returns will fall to £22.35 a year – a £22.05 fall.
Any Santander customers with £20,000 stashed away can currently earn about £238 in a year (after the £5 monthly fee), but after the rate falls to 1% this will drop to £140 (after fees) – nearly £100 less.
Interest losses may also be felt by anyone with a lot of cash held in a Starling Bank current account. Taking the example of someone with £20,000 over a year, the current rates would see them earn £100. But once the rates are cut, this interest would reduce to just £10.
- Find out more: best high-interest bank accounts
Things to consider before switching
When it comes to current accounts, earning interest is not the only thing you’ll need to consider before making a switch.
You’ll also need to think about factors like:
- does the provider offer good customer service?
- if you bank online, does it have an easy-to-use app?
- if you prefer banking in-branch, are there branches near you?
If you’re ready to switch, this could be done in just seven working days if the provider is part of the current account switch service (CASS).
- Find out more: how to switch your bank account