Despite being the UK's most recommended bank, it seems that First Direct could be shooting itself in the foot with its latest announcement!
First Direct, (the telephone and internet branch of HSBC if you didn't know) today announced it would no longer pay interest to current account customers with positive balances!
When you think about that for longer than a few seconds you realize that it effectively means that customers are giving the bank an interest-free loan!
First Direct, (which last year caused a right old barney after it announced a £10 charge on its bank account for customers paying in less than £1,500 a month), said the change would enable it to offer a better deal on savings accounts and overdrafts!
Of course -that makes perfect sense...!
So, from November 1, if you have a First Direct Bank Account, you will be moved to a new 1st Account, and the interest paid when you are in credit will be cut from 2% AER to 0%. If you have a First Direct cheque account, (currently paying a staggeringly generous 0.1% interest), you will also be moved to a 1st Account.
Instead you will now have access to an instant-access savings account paying 5.5%.
First Direct is also making the first £250 of its overdrafts interest-free and offering you free text message "red alerts" to help you avoid going overdrawn or past your overdraft limit. (text message alerts previously cost £30 a year).
First Direct would not disclose how much the average balance of a current account customer was, but said even someone who did nothing as a result of the changes would be £1.20 a year better off because of the free overdraft and text messaging services!
First Direct has justified their move by saying research shows its customers simply do not care about the interest they earn.
We would be interested to know if you agree with this statement! Why not let us know in the comments?
"A staggering 96% of our customers told us that credit interest wasn't an important factor in choosing to bank with First Direct," said Chris Pilling, the bank's chief executive.
He added that "almost 70% didn't know the rate of interest on their current account" and were far more concerned about service levels.
"So we figured it made far more sense to use every single penny we currently pay in credit interest to give customers the chance to earn serious interest on higher interest savings accounts," Pilling explained.
Rob Skinner, a spokesman for First Direct, added that 80% of customers already held savings accounts with the bank. "We have wanted for some time to offer better interest on our savings accounts. Our account at the moment pays 4.75% but that is just on the highest balances; now we will be paying 5.5% on balances of £1 and more," he said.
However, he added that customers will have to ask to be moved to the new savings account, rather than being switched automatically.
A customer who moved their savings to the new savings account stands to gain £34.80 on average, it claimed.
However, while it is good to see a bank listening to its customers, even with the new deal First Direct is still far below the market leaders.
Halifax, Abbey, Alliance & Leicester and Coventry Building Society all offer at least 6% interest on their current account; (a lot more than First Direct's new savings account).
Coventry also gives the same £250 interest-free buffer on its overdraft, Citibank's is £500, and Alliance & Leicester's overdraft is entirely interest-free for your first year.
So First Direct customers, the question you have to ask yourselves is are you willing to take a worse deal for higher service standards!
What do you think?
Who is Britain's worst bank?