Nationwide Building Society is more than halving its 5% rate on a flagship account down to 2%, in another blow for cash savers.
From May 1, Nationwide’s FlexDirect current account will pay interest of 2% on balances up to £1,500 for the first 12 months. After that period, the rate will revert to 0.25% on balances of up to £1,500.
The account has been paying customers 5% interest on balances up to £2,500 for the first 12 months, followed by a rate of 1%.
Nationwide said it is its first reduction to the credit interest rate on FlexDirect since the account was launched in November 2012.
Many other providers have slashed their savings rates over the years in the low interest rate environment, while Nationwide had left this rate untouched.
The society said that despite the change, FlexDirect continues to offer one of the highest rates of credit interest on the market.
The move follows the Bank of England’s recent decision to whittle the base to a record low of 0.10%. The rate moved from 0.75% to 0.25% and was reduced further to 0.10% just days later in an emergency response to the coronavirus outbreak.
Nationwide said any FlexDirect accounts applied for before May 1 will continue to receive credit interest of 5% on balances of up to £2,500 for the remainder of the 12-month introductory period.
Existing FlexDirect customers who have had their account for longer than the introductory 12-month period will have the rate reduced to 0.25% on balances of up to £1,500, from July 1.
Nationwide also announced changes to rates paid to savers on several other accounts. It said the majority of accounts will see less than the 0.65 percentage point reduction recently seen in the base rate.
Around two-thirds of the society’s savings accounts will be reduced by less than 0.65 percentage points, but some savers in higher-paying accounts will see rates reduced by more, it said.
The rate changes will take place in May, with the exact date depending on the product.
Sara Bennison, who oversees Nationwide’s products and propositions, said: “We know that this is a tough time for savers, particularly after two cuts in bank rate in quick succession taking it to an historic low of only 0.10%.
“In order to preserve the long-term sustainability of the society for all our 16 million members, we have had to take these decisions on the interest rates we can offer on a number of our accounts.
“We have tried to remain as competitively priced as possible, with our FlexDirect account, for example, remaining one of the best in the market for credit interest and our savings prize draws helping people into good savings habits.”
Rachel Springall, a finance expert at Moneyfacts.co.uk, said the new 2% rate on the FlexDirect account will still be an “attractive return” for new customers in the current market.
She said: “TSB is reducing its credit interest rate on the Classic Plus (account) in May from 3% to 1.5%, and Santander’s 123 account will be cut in the same month from 1.5% to 1.0%, so Nationwide will continue to offer a better rate given the changing market.”