Is the new Nationwide Flex Direct charging tariff an ominous sign?

Today Nationwide Building Society launched a new ‘Flex Direct’ current account, the first new bank account from the UK’s biggest mutual in over a quarter of a century.

Flex Direct differs from the much loved FlexAccount in a number of ways:

  • You can open the account in branch but after that it must be operated solely online or by telephone.
  • Unlike the Flex account, the new offering pays credit interest of 2% on the first £2500 for year one and 1% on the first £2500 in subsequent years. A basic rate taxpayer keeping the full £2500 in the account will earn £40 in year 1 and £20 per year in subsequent years.
  • The new account doesn’t include the free european travel insurance you get with the Flex Account.
  • The big difference comes when you look at the charges for authorised and unauthorised borrowing – we’re not just looking at different levels of charging, but two completely different tariffs.
  • With Flex Account you pay interest of 18.9% for agreed overdrafts whereas the new Flex Direct tariff charges you £1 per day (max £20 per month).
  • For unauthorised borrowing Nationwide customers pay 18.9% plus a £20 monthly unauthorised fee, but with Flex Direct you pay £5 per day up to a maximum of £60 per month.

For those with relatively small overdrafts, the £1 per day structure may be easier to understand, but it’s also far more expensive. Charging £1 for a one day £500 overdrawn balance is the equivalent of an interest rate of 73% and if you’re £1000 in the red, a £1 daily charge is the equivalent of 36.5%.

With savings rates in freefall, it’s a strange time to see a new current account offering credit interest and no doubt this incentive will be funded at least in part by the new overdraft charges.

If you’re looking for a current account to give you something in return, take a look at Halifax reward paying £5 net per month (plus £100 when you switch) - but as with the Flex Direct it’s not suitable if you’re regularly in the red.

I can’t help but feel that the new overdraft tariff may in time take the place of the interest charging model on the original Flex Account.

Taking all the factors into consideration I’m not particularly excited by this new account and would give it a MISS

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