profits

Disclaimer: Nothing herein is financial advice. Please do your own research and make your own, informed decisions when selecting a financial product or service.

I was asked by Simon English, ex City Editor of The Standard (and Nationwide member) last week what I thought of Nationwide building society’s decision to increase the interest rate on its credit cards for existing members.

He subsequently wrote an article that was published today (5 March 2025) in the Daily Mail: Nationwide accused of ‘rampant profiteering’ as it hikes credit card rates by up to 50%

Simon’s initial question was this:

“Why has my credit card interest rate gone up from 15.9% to 20.9% when Bank of England base rates are going down?”

The chart above shows how the average APR (Annual Percentage Rate) for new Nationwide credit card applications (aka “front book” customers – see longer explainer below) has changed over the last 15 years (the red line). There was a sudden increase a year ago at the start of 2024 to 24.9% – which is both the highest APR in the last 15 years, AND the highest average spread (the yellow line) over the Bank of England base rate (the blue line).

Two possible reasons for this increase by the Society are:

1. The Bank of England base rate had steadily increased since early 2022 , so the spread between APR and base rates was being eroded, impacting profitability. Base rates have only been reduced a small amount since peaking in early 2024. Instead of slowing increasing rates, the Society waited and made one single big change (less costs to the Society of making incremental changes, less death by a thousand cuts for members).
2. The Virgin Money acquisition was announced early 2024. A 24.9% APR is consistent with the Virgin Money front book pricing.

Trying to second guess which of these two factors weighed more heavily in the decision is hard to do from the outside. But the outcome is undeniable: instead of Virgin Money new applicants being offered a reduced rate to match Nationwide long term margins of c 16% i.e. extending the benefits of mutuality to Virgin Money customers (Virgin Money is no longer a shareholder owned bank), Nationwide member credit card rates have been increased to align with Virgin Money rates, prior to its acquisition by Nationwide Group.

This is why I called it out as “rampant profiteering”. It runs contrary to the narrative provided by Nationwide’s CEO and Chairman at the time of confirming the acquisition was proceeding:

“In March 2024, we confirmed our offer to buy Virgin Money. I believe this deal offers an exciting opportunity to create a more diverse business that delivers even more value to our members and will strengthen Nationwide financially. We continue to make good progress on our plans and expect to complete the acquisition in the fourth quarter of 2024, subject to regulatory approval.”

Debbie Crosbie, Chief Executive

“The acquisition of Virgin Money will bring the benefits of mutual ownership to more people in the UK and will enable us to provide further value to customers and members through its products and services.”

Kevin Parry, Chairman

The data for rate changes to existing credit card customers is harder to come by, as different customers signed up to different offers at different times, and it’s not transparent how these variable rates have been adjusted over time. But it looks like the 5% increase that impacted new customers 12 months ago, is only now being applied to existing customers.

Simon’s rate on his existing Nationwide card has just been increased from 15.9% to 20.9%, while new customers have to pay 24.9% currently. So more price rises may be “on the cards”. However Nationwide will also have balance the potential for extra margin vs losing customers / members altogether – the more the Society puts up the prices to increase profit margins, the more likely it is that customers / members will shop around and look for a better deal elsewhere.

For more detail about credit card pricing and the range offered by Nationwide over time, please see below.

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I hadn’t looked at the Nationwide credit card offerings before, so I decided to do some research into the history of credit cards at Nationwide building society, and compare the Nationwide offers to those of the newly acquired Virgin Money, which is now part of the Nationwide Group.

Why do credit card offers have different rates?

The first thing to note is that banks and building societies issue different products (or offers) over time. Different considerations are taken into account when designing a credit card offer, and these change over time, e.g.

• the Bank of England base rates
• the risk that customers cant pay back their debt
• the market conditions i.e. competition and regulation
• the bank / building society’s costs
• the strategic / profitability outlook for the institution

So the credit card offer an existing customer signed up to 5 years ago is not necessarily going to be the same as the offer a new applicant receives today. This is often described as “front book” (i.e. new applicants) vs “back book” (i.e. existing customers) pricing, where “pricing” is a composite of the different parameters that make up the offer – not just the ‘headline’ interest rate or APR (Annual Percentage Rate), but also the fees involved, the size and duration of any introductory offers, any perks etc.

Also note that under FCA rules for financial promotions, credit card offers that carry a “Typical APR” means that the offer must be available to at least 66% of applicants. Why might some applicants get a different APR? Some financial institutions employ risk-based pricing i.e. those customers that are assessed as having “good credit” (more likely to repay their debts) get a better offer than other customers who are deemed less good / bad. And those with very bad credit may have their application rejected altogether.

Nationwide’s credit card offers have changed over time

Nationwide “front book” pricing (today)

If I log into my Nationwide app on my phone, click Products at the bottom, and then select Credit Cards – I am presented with two credit card offers:

1. Member Credit Card – Balance Transfer (BT) Offer, and
2. Member Credit Card – All Rounder (AR) Offer

These “front book” offers are very similar: both cards are issued by VISA and the card images look identical. They both carry a headline rate of “24.9% APR Representative (variable).” Both cards incur a 1.5% fee (minimum £5) if you’re planning on transferring your unpaid credit card balance from another card to Nationwide within 90 days of account opening. Transfers made after that date will be subject to a 2.4% fee (still a minimum £5).

The only notable differences are the in the introductory offers that each offers

1. 0% [interest] on balance transfer offers for 18 months, 0% [interest] on purchases for 3 months, versus
2. 0% [interest] on balance transfer offers for 15 months, 0% [interest] on purchases for 15 months.

So the first “BT” card is good if you’re planning on transferring a balance, as you get 18 months interest free (but you will pay a one-off balance transfer fee of 1.5% or 2.4% depending on when you make the transfer). But it’s not great if you’re planning on using the credit card to make lots of purchases after the month 3. If you don’t have a balance to transfer, or are going to be spending consistently on the card and not paying the full balance at the end of each month, the second “AR” may be a better “All Rounder” offer for you.

Virgin Money “front book” pricing (today)

It’s interesting to note that the headline “24.9% APR Representative (variable)” that Nationwide offers to members who want to apply for a credit card today, is the same headlone interest rate for the Virgin Money credit card offers, which mostly carry “Representative 24.9% APR (variable)”. The words are in the same order, but the meaning is the same.

The Virgin Money offers are slightly different to Nationwide’s however:

1) Balance Transfer offer

• Up to 29 months at 0% interest on balance transfers made in the first 60 days. Fees apply.
• 12 months at 0% interest on money transfers made in the first 60 days. Fees apply.
• 3 months at 0% interest on spending.

2) All Round offer doesn’t share the details of what the typical offer is – perhaps because it depends on your credit / risk assessment.

Comparing “front book” pricing of today vs. yesteryear

Thanks to the Wayback Machine Internet Archive, it’s possible to compile a list of the prior Nationwide credit card offers by looking back in time to what offers were promoted on Nationwide’s website. (Someone has also created a visual archive of some different debit and credit card designs.)

What this shows is that Nationwide has experimented quite a bit with different credit card offers over time:

• A single “gold card” covered both the BT and AR needs until 2011
• Two different offers existed from 2011 onwards to cater to BT and AR needs
• The “Select” card was introduced c. 2014 (this used to offer cashback on purchases)
• There were 5 different offers were available simultaneously in 2015: Select; Purchase offer; Long term BT; Select longest combined; Low fee BT
• The “Nationwide” card was introduced in 2016 to cater to BT and AR needs, alongside the Select card
• The Select card was withdrawn c 2020, and the BT and AR offers remained, as per today

This also allows a comparison of the average APR of the available credit card offers over time, and how these compare against the prevailing Bank of England base rate at that point in time.

The bottom line

This shows that over the last 15 years, today’s front book APR of 24.9% has reached an all time high.

It also shows that while BoE base rates have increased recently, and now fallen back a bit, the difference between front book pricing (measured by APR) vs the BoE base rate is now the largest spread at any point in the last 15 years (24.9% – 4.5% = 20.4%).