Nationwide has increased the interest rate on its FlexDirect current account to a market-leading 5 per cent once more.
The rate will be available for new applications who open an account from today on balances up to £1,500 for the first 12 months.
It means someone keeping at least £1,500 in the account could earn £75 in interest.
The current account king: Nationwide has attracted more than 661,000 more customers than it has lost via the switching service.
Current account in-credit interest has dwindled in recent years, with many banking providers offering little to no interest to customers.
Nationwide’s decision to reinstate the 5 per cent rate that it cut to 2 per cent in April 2020 will further tempt switchers, particularly as it continues to offers a cash bribe worth up to £125, which has been in place since last August.
It pays £125 to existing members who hold another product – such as a mortgage or savings – who switch their current account, while completely new customers will receive £100 for switching.
The cash bribe and interest combine to mean that someone switching to the FlexDirect account could earn between £175 and £200 across a 12 month period.
Britain’s biggest mutual also offers interest free overdraft for the first 12 months, although this must be repaid within that time or customers face paying 39.9 per cent interest if they remain overdrawn.
How it works?
Britain’s biggest mutual has snapped up more than 600,000 net switchers since 2013 – more than any other provider – and this latest incentive will likely see that figure grow.
Unfortunately, anyone who has previously held a FlexDirect account will not be eligible for the new rate.
However, if applicants have previously held a sole account only, they would be eligible for the introductory rate on a joint account and vice versa.
To qualify, switches must be made from another provider using the Current Account Switching Service (CASS) and a minimum of two active direct debits must be transferred as part of the switch and set up on the new account. CASS will do this automatically for you.
To benefit from the in-credit interest, holders must pay in a minimum of £1,000 each month.
On the last day of every month Nationwide will calculate the interest earned each day and then pay this interest on the first day of the next month.
However, if the monthly income being deposited into the account drops below £1,000, you won’t receive any interest that month.
The 5 per cent rate ends after one year. Thereafter it drops to just 0.25 per cent. So it will be worth looking elsewhere after the 12 months for a better return on your money.
How does it compare?
In terms of in-credit interest, Nationwide is now well above its competitors.
The next best account is offered by Virgin Money, paying 2.02 per cent interest, on balances up to £1,000.
Meanwhile Club Lloyds pays 0.6 per cent on balances up to £4,000, and 1.5 per cent on between £4,000 and £5,000.
Lloyds Bank is offering new customers £125 when they switch to a Club Lloyds bank account.
However, for those choosing a current account purely on interest, they may want to consider Virgin Money or Chase, as both these banks offer market leading easy-access linked savings accounts.
Virgin Money current account customers now have access to a market leading savings rate of 1.56 per cent on balances up to £25,000, whilst Chase pays 1.5 per cent on balances up to £250,000.
Someone with £25,000 in Virgin’s linked savings accounts would earn £393 in interest after one year.
Rate hike: Virgin Money increased the savings rate on its popular linked savings accounts. The rate rises from 1 per cent to a market-leading 1.56 per cent for all new and existing customers.
In terms of the £100-£125 incentive, Nationwide is one of only four banking providers luring switchers in via cash bribes.
First Direct is offering £150 to switch, HSBC is offering £170, whilst Lloyds is offering £125.
However, the interest rate and cash bonus is not the only reason for switching a current account.
Starling Bank has consistently secured net customer gains via the current account switching service despite not offering cash incentives.
Overdraft limits, cashback and other niche lifestyle benefits are all factors that count for something.
For example, Virgin Money’s current account switch incentive offers new customers 20,000 Virgin Points to spend via its rewards club Virgin Red. You can find out more about the options available here.
Santander offers between 1 and 3 per cent cashback on various household bills, whilst others offer fee free usage abroad such as Chase, Monzo and Starling Bank.
Roughly 3.9m customers earn cashback on their bills via Santander’s current accounts.
Furthermore, online and mobile banking offerings and better customer service are often cited as the main reasons behind people switching current accounts.
Ultimately, however, if cold hard cash is all you’re after, Nationwide’s current account switching perks are some of the best on offer.
However, you may just find yourself needing to switch again in a year when that in-credit interest plummets to 0.25 per cent.