uSwitch.com: first direct reshaping its current account

Mike Naylor, personal finance expert at uSwitch.com, the independent online price comparison and switching service, comments as first direct reshapes its current accounts in a bid to improve customer service.

first direct has announced the merger of its Cheque account and Bank account from 1st November into the 1st Account. Unusually, the 1st Account will not pay any credit interest. “first direct has joined the bandwagon of high street banks overhauling their current accounts ahead of the OFT court case. first direct believes that the changes, including no longer paying any interest to its current account customers, will ensure that all of its customers receive the best possible customer service. However, first direct customers could be forgiven for thinking that good customer service should come as standard and that they shouldn’t be expected to trade-off credit interest for a high level of service. Overall, the changes are not very exciting – even by first direct’s estimates, the average customer will be better off by a rather unimpressive £1.20.

“Customers will need to ensure that they comply with the rules introduced earlier this year to avoid incurring a £10 monthly charge on their current account. The £10 monthly charge applies if customers are unable to pay a minimum of £1,500 into their account each month, maintain an average balance of over £1,500 per month, or don’t hold another first direct financial product. These customers should consider switching away to a provider that charges lower overdraft rates and no monthly fees.”

Mike Naylor comments on the changes that will become effective from 1st November:

Change 1: Merging its Cheque account and Bank account into the 1st Account (which pays no credit interest). Customers can set up a monthly sweep to move money from their 1st Account to an Everyday e-Saver which pays 5.5% AER.

“Instead of putting the onus on customers to open a separate savings account and having to “sweep” money into an e-Saver each month, it would be a lot easier if they just increased the amount of credit interest for all customers. This could be a costly move for those customers who fail to take the initiative to open a savings account. However, looking on the bright side, a rate of 5.5% is good and much better than the 0.1% and 2% paid on first direct’s existing current accounts.

“Inevitably, some customers will have to keep at least £1,500 in their current account (not earning any interest) to make sure they don’t get charged a £10 monthly fee. These customers would be better off switching to Abbey’s Current Account, which pays 8% AER for balances up to £2,500 for 12 months. It also only requires customers to pay a minimum of £1,000 a month into their account as opposed to £1,500.”

Change 2: The introduction of an interest free overdraft facility up to £250. Overdrafts over £250 will be charged at 12.9% EAR for authorised and unauthorised overdrafts and an arrangement fee of £25 will be waived if: it is the first overdraft request in six months, if funds are paid in to meet an unauthorised overdraft by close of play on the same day, or if debited arrangement fees cause the account to go overdrawn or further overdrawn (from 1st October).

“An interest-free £250 overdraft is always a good facility for customers to have access to. However, there is a £25 set up charge if more than one overdraft request is made over a six month period.

“Unauthorised and authorised overdraft interest rate charges of 12.9% EAR are about average across the industry, although there are better deals on offer. Customers who make regular use of their overdraft facility should consider switching to Alliance & Leicester’s Premier Direct Current Account which offers 0% for 12 months on up to £2,500, the best deal on the market at present.

“On a positive note, it’s good to see banks bringing unauthorised interest rates in line with authorised borrowing rates. We would like to see more banks implementing similar changes.”

Change 3: first direct is to offer free overdraft text alerts for all its customers

“Any free benefit that helps customers better manage their money can only be a good thing.”

Change 4: The introduction of the Regular Savings account that offers 8% gross AER

“8% is a good rate. However, customers are restricted to making monthly payments of between £25 and £300 only and anyone withdrawing their money before a 12 month period has expired will only get 4% interest. If people have a lump sum to invest, they would be much better off with an account that doesn’t limit how much can be paid in each month such as Bradford & Bingley’s Internet Saver account, which offers 6.40% AER.”

Change 5: The introduction of a service guarantee - any customers who are new to first direct from 1st November and are not wholly satisfied can claim £100 and close their account within 12 months of its opening (provided they have paid in a salary or income of £1,500 or more for at least six months).

“The £100 money back service guarantee is an interesting way of attracting new customers. first direct is putting its money where its mouth is and banking on its reputation for providing good service being enough to stop new customers from switching away.”