A major current account provider is offering 5% interest on balances up to £1,500 for the first 12 months as the battle to attract customers heats up.
Nationwide Building Society previously offered 2% fixed for 12 months on balances up to £1,500 on its FlexDirect account, but it is more than doubling the rate on offer to 5% AER (annual equivalent rate).
The 5% introductory rate is available on new applications opened from June 21. After 12 months, the account pays 0.25% AER.
Members can only benefit from the introductory credit interest rate and interest-free overdraft offer once, meaning 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.
Members will need to pay in £1,000 per month, not counting transfers from other Nationwide accounts or Visa credits.
Those switching their current account could also benefit from the Society’s switching incentive, which pays £125 to existing members who switch their current account to the Society and £100 to new customers.
To qualify, switches must be made from another provider using the Current Account Switch Service (Cass) and at least two active direct debits must be transferred as part of the move to the new account.
Debbie Crosbie, chief executive at Nationwide Building Society, said: “This market-leading rate will help new and existing members make the most of their money, which is particularly important right now.
“The FlexDirect current account also has an introductory interest-free overdraft to give some peace of mind to those struggling financially and freeing them to focus on repaying other debts.”
Nationwide said that, combining the £125 switching incentive with £75 interest that people could potentially receive from the 5% interest rate, people could benefit from a £200 boost over the course of a year if they have at least £1,500 in their account over the next 12 months.
FlexDirect also offers an interest-free overdraft for the first 12 months, meaning eligible applicants can switch their overdraft from their existing current account provider or another Nationwide account.
After the initial 12 months, the overdraft interest rate is 39.9% and the overdraft that someone is offered in the first place will depend on individual circumstances.
Rachel Springall, a spokeswoman at Moneyfacts.co.uk, said: “It’s exciting to see Nationwide offer a market-leading interest rate on a current account which may entice consumers coupled with the switching cash incentive.”
She added: “It will be interesting to see whether any of its competition will review their interest rate offers on current accounts in the weeks to come.
“Due to the back-to-back base rate rises, some providers have been adjusting their current account interest rates, such as Santander.
“Consumers will find Virgin Money paying 2.02% AER/2% gross on balances up to £1,000 and also offer an attractive linked saver.
“Elsewhere Halifax will pay a monthly reward of £5 on its reward current account, so consumers could earn up to £60 a year on this option.
“Those consumers comparing up-front switching cash will find more generous free cash elsewhere, such as with HSBC (£170) and first direct (£150).
“When comparing current accounts it’s vital consumers take into account both any benefits and fees charged to ensure it suits their banking needs.”