Bank Charges means the end of free banking
First Direct is to stop paying interest on its 1.2 million current accounts patrons in another step nearer towards the end of free banking while in credit, reports Myra Butterworth
Several other banks are anticipated to reveal new charge tariffs for current accounts soon, with Alliance & Leicester expected to announce changes to its tariffs in the next few days.
First Direct, which is part of the HSBC Group, offers two current accounts – the Cheque account and Bank account, which pay 0.1 per cent and 2 per cent gross interest a year respectively. But from November 1, First Direct will no longer pay any credit interest. Instead, it wants to use the money it presently pays in credit interest to give patrons the chance to earn “serious” interest on higher interest savings accounts.
It is launching a new savings account paying 8 per cent interest, fixed for a year, for savers putting away between £25 and £300 a month. Savers can only withdraw their money after 12 months. If they want to access their money before the end of the 12 months, they can close the account but will receive First Direct’s standard Savings Account interest rate of 4.00 per cent AER variable.
Chris Pilling, First Direct’s ruler executive, said: “A staggering 96 per cent of our regulars told us that credit interest was not an important factor in choosing to bank with first direct. And almost 70 percent didn’t know the rate of interest on their current account.” He added that the banks wanted to use the money it presently pays in credit interest to give patrons the chance to earn serious interest on higher interest savings accounts.
Several other banks are anticipated to announce changes to their current accounts in the coming weeks.
Sue Hannums, of autonomous financial advisers AWD Chase de Vere, warned: “Patrons have to be practicable that we are heading towards patrons having to pay for the running of their current accounts.”
The First Direct announcement was made ahead of a test case about allegedly unfair bank charges which was launched by the Office of Fair Trading and due to be heard in January.