Halifax and figures

The launch by the Halifax of a current account paying 4 per cent interest could be the first shot in a price war. Or it could be a damp squib, depending on whether the other high street banks follow suit.

The launch by the Halifax of a current account paying 4 per cent interest could be the first shot in a price war. Or it could be a damp squib, depending on whether the other high street banks follow suit.

Banks have always relied on the credit balances of customers' current accounts as a cheap source of funds to lend out. This happy arrangement started to unravel in the 1980s, when building societies were allowed to start competing in the current account market. I still remember the excitement when the Nationwide launched its Flexaccount in 1987. Few people could believe they would get interest on their chequebook account.

In the event the interest was pretty small, and most banks which bothered to start paying interest also cut back their rates as time went on. Today, Halifax's 4 per cent looks generous compared to the average rate paid by the high street big four of around 0.1 per cent.

Halifax aims to poach customers from these bigger banks. The problem is shifting your current account to a new bank is a pain in the neck. Direct debits and standing orders often take months to sort out. The bank that you are deserting has little incentive to put your move at the top of its priorities. Some even charge for the administration involved.

The Halifax, like several banks before it, has promised to take over the burden of arranging the move. But the majority of customers will only start switching when an automated system to shift your direct debits from one bank to another is launched at the end of next year.

That should solve one major nightmare. But there is still another possible worry. I have absolutely no evidence to back this up, but there are a number of reasons to believe that leaving a bank you have been with for decades could reduce your attractiveness to a lender.

One of the first things any lender does when "credit scoring" your loan application is to ask how long you have been with your bank, and to list your previous banks. Surely banks would prefer to lend to a long-established and reliable customer, rather than one who has been "surfing" institutions.

The banks insist this isn't so, but I have my doubts. On the plus side, the banks are having to compete so hard these days to attract customers that the conditions they have to offer are getting better and better.

There is one downside to this otherwise improving picture, and that is the banks' need to cut costs. This means less branches and less staff. Where once you could walk into your branch and ask to see the manager, now you will usually have to phone a "customer service centre", which could be located anywhere from St Ives to Inverness. Finding one person in the bank who keeps track of all your affairs is getting more difficult - unless you are prepared to pay for "private banking".

For now, though, we should congratulate the Halifax and urge the rest to follow its example.

John Willcock is the Personal Finance Editor of The Independent

j.willcock@independent.co.uk