Nationwide pays you to downgrade

This surprised me, but it’s there in black and white on the website.

FlexPlus is Nationwide’s premium paid-for current account. For a fee of £10, which increased to £13 in 2017, you got mobile phone insurance, travel insurance, no-fee ATM withdrawals overseas, and 3% interest on balances up to £2,500. It’s been MoneySavingExpert’s recommended premium account for years now, and until recently was a great deal. Possibly a bit too good to be true.

Last Friday however, Nationwide announced it was ending the interest on positive balances, ending unarranged overdraft fees (while hiking the APR), ending foreign transaction fees, and making some changes to the insurance policies. You can see the full list of changes here. The insurance and overdraft changes didn’t bother me, but axing the interest caused me to re-evaluate. As I already have travel insurance, have never needed the mobile insurance, and have my Starling card for overseas spending (full disclosure – I work for Starling), I decided it wasn’t worth keeping FlexPlus anymore, and to downgrade to FlexDirect.

While most accounts can apparently be changed online, FlexPlus is an exception, so I phoned up and sat on hold for 25 mins. The lady that eventually answered the phone told me that I’d need to phone up again on Monday, contradicting the website which said it could be done on a Saturday. It seems my call had gone to the wrong department, even though the number I had called was the right one. She transferred me to the sales team.

Now after listening to a recorded message speaking legalese to me I had to listen to another lady reading yet more legalese. I pretty much switched off at this point, as listening to legalese is about as engaging as random pensioners talking about their gran-kids in a supermarket checkout queue.

But then my ears pricked up (I’m paraphrasing here as I can’t remember the exact words):

“… on opening of your FlexDirect account you will receive bonus interest of 5% on balances up to £2500 for the first twelve months …”
“I’m sorry, did you say 5% interest?”
“Just to clarify, the interest has been removed from FlexPlus, but is remaining on FlexDirect?”
“Yes, that’s correct”

I should have read the website, but I wasn’t expecting that, and I didn’t really expect to get the introductory bonus rate when moving to a lesser account.

The maths, for the interest-maximising balance of £2,500 (which I aim to keep the account at; 3% is higher than any easy-access savings account), works out as follows:

Monthly FeeInterestNet monthly effect
FlexPlus (pre-2017)£103%-£3.75
FlexPlus (2017-2019)£133%-£6.75
FlexPlus (post-2019)£130%-£13
FlexDirect (first year)£05%+£10.41
FlexDirect (after 1 year)£01%+£2.08

FlexPlus was a stupidly good deal when I signed up, but it’s been steadily eroded since. Comparing FlexPlus post-2019 to FlexDirect gives a delta of £23.41, which, for mobile phone and travel insurance that I don’t really need, is very expensive.

Obviously, the bonus rate ends after the first year, at which point I’ll be earning just 1%. I probably won’t bother maintaining a £2500 balance after this, as it’s pretty easy to beat 1% with a savings account. But it seems to me that there’s little to stop you switching to another account, then switching back again to get on the higher rate.

So I can’t really figure this out. It feels like I’ve been incentivised to downgrade. Was FlexPlus really that unprofitable?

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