Trying to match Abbey National would strain their resources because they have a higher proportion of customers with overdrafts. It could also lead to extra charges for all customers.
Barclays Bank's response was typical: 'We are watching the situation with interest but we do not think we will follow with any knee-jerk reaction. We think this move is typical by a small player with a low number of overdrafts.
'We have 1.5 million current account holders, of which one in five are overdrawn in any one quarter. We do not believe it would be commercially viable for us to charge such a low rate to them. At the end of the day, someone has to pay.'
Lloyds Bank said 70 per cent of its current account customers never overdrew and only 20 per cent were overdrawn at any one time, so such a move would hardly benefit many clients.
Nationwide Building Society said it would keep the situation under review. While refusing to disclose how many of its 1.2 million account-holders have agreed overdrafts, it pointed out that, unlike other building societies, its customers can go overdrawn up to pounds 100 without incurring any charges.
Many other banks, including Barclays and Royal Bank of Scotland, operate similar overdraft 'buffer' zones.
Mark Murphy, marketing manager at Abbey National, claimed the cut was a response to customer needs. 'We believe that the banks are charging too much for this facility,' he said.
'Our research shows that many customers are attracted to Abbey National because of our low-fee, low-interest authorised overdraft.'
Despite this seeming attraction, only about 60,000 of the bank's 1.5 million current account customers have an overdraft. They average between pounds 200 and pounds 300, perhaps explaining why Abbey feels able to chop its rates.
Apart from Halifax, at 12.4 per cent, and Midland, which charges 16.7 per cent APR, agreed overdraft rates at other banks and big building societies stand at more than 18 per cent.
Alliance & Leicester will next week be launching a new current account with a 24-hour telephone service. The Alliance account will pay 0.5 per cent gross on sums up to pounds 2,000. Authorised overdrafts are 16.1 per cent, making them cheaper in some cases than loans. Account holders must agree to pay either their salary or at least pounds 300 a month into their account.
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