Second rate deals at First Direct

By SASCHA HUTCHINSON
Updated: 08:05 EST, 16 November 2006

People who earn less than around £25,000 a year are being told they can avoid paying a £10 monthly fee on their First Direct current account – as long as they buy another of First Direct's expensive products.

First Direct offers loans, credit cards, mortgages, insurance and savings accounts, but they are poor value compared to other products on the market.

First Direct's Visa credit card will charge you 16.9% APR, and 2.9% on balance transfers of at least £500. And while First Direct balance transfers are fee-free, the Halifax Mastercard offers a 0% balance transfer and 0% introductory rate for nine months, which then increases to 9.9% APR.

If you're not a disciplined rate tart and don't need a balance transfer, Barclaycard offers a low 6.8% APR for new customers.

First Direct also offers a savings account which is still below the base rate and leaves customers prone to forfeiting their interest. The e-savings account pays 4.75%, but if customers make just one withdrawal they lose all interest earned that month.

First Direct customers would do far better by shunning the e-Savings account and opening an online account with IceSave, which pays 5.45% on balances of at least £250, with no other conditions. Birmingham Midshires pays 5.1% on their similar online savings account.

The First Direct Isa is equally poor value, paying 4.25%. National Savings & Investments pays 5.55% to customers who have a balance of at least £1,000. For customers with a smaller balance, Kent Reliance Building Society offers 5.21% and Intelligent Finance pays 5.1% on all balances.

First Direct also offers several mortgages, and while its offset mortgage, at fixed at 5.49% for three years, is towards the cheaper end of the market, the people affected by the changes to current accounts – those on lower incomes – are less likely to be in a position to buy a house.

Deal finders

• Find a cheaper mortgage
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Its personal loan rate of 6.9% is also not one of the most expensive on the market, but nor is it the cheapest. The best-buy rate for a £10,000 loan over three years is 5.4% with Zopa, followed by 5.6% with Moneyback Bank and 5.9% with Northern Rock and Alliance & Leicester.

This is Money readers have reacted angrily to the news about the charges. Beverley Osborne, who is self-employed, said she would be switching to another bank because her income varied from month to month and she was concerned that occasionally she would go underneath the £1,500 threshold.

'I have complained to First Direct stating that I am not one of the dormant customers they want to discourage. But because I don't have a regular salary, I can't guarantee to keep £1500 in my account, and why should I? Really, this is going to hammer self-employed people like me,' she said.

Ms Osborne said she would be switching to Abbey, where she has her business account.