First Direct to increase Isa rates

First Direct is increasing the interest it pays on its cash Isa from November this year. However, not all of its customers stand to benefit.

The First Direct Isa pays a tiered rate, which currently starts at a less than impressive 0.5% on balances up to £4,999, rising to a market leading 3% on balances of £40,000 or more.

From 1 November, the bank will increase the rate on balances up to £4,999 from 0.5% to 1.3%. The rate on balances from £5,000 to £9,999 will rise from 1.2% to 1.5%.

But savers with £10,000 more on deposit won't enjoy any increases and could actually see their savings rate tumble.

First Direct is maintaining its rate of 1.7% on balances between £10,000 and £19,999 but savers with between £20,000 and £39,999 will see their rate fall from 2.2% to 1.85%, while savers who are currently enjoying a very competitive 3% on balances of £40,000 or more will see their rate crumble to 2%.

According to Andrew Hagger, independent savings expert from Moneycomms, this reduction will mean savers with a balance of £40,000 will see their interest fall by a third from £1,200 a year to £800.

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And with competitor rates remaining so poor, savers will struggle to get a better return elsewhere. "There is nothing above 2% on instant access. Britannia Building Society is paying 2.25% on a two year deal or if you are prepared to tie your money up for five years Skipton Building Society is paying 2.5%," he says.

Sue Hannums, director of, adds: "Rate cuts are not isolated to First Direct, but what makes this change so disappointing is that inflation proofing your savings just got near to impossible. Most savers will effectively be losing money in real terms on their cash, which is a desperate state of affairs."

Hannums points out the only account to beat inflation is a seven-year fix from Skipton, paying 3.5% but only on balances up to £10k,000. It's available online or in branch and is an ordinary bond, not an Isa.

Even though First Direct is raising rates for its less well off savers, Hagger says they can still get better returns elsewhere. "There is a whole host of providers paying 2% for instant access on £1," he says. These Include Tesco, Nationwide, Cheshire Building Society and Derbyshire Building Society.

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Your Comments

Thanks First Direct - I'm off and taking ALL my accounts elsewhere, I wondered when I transferred most of my Isas to them (a labourious process) how long the rate would last - Yorkshire Bank 40  day notice gets my money 2.5% 

Steer clear of Ist direct...wish somebody had warned me!,