Banks rely on our loyalty

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Banks are giving graduates a relatively gentle welcome to the real world. As we report on this page, chunky interest-free overdrafts and preferential loan rates abound, and some of these deals run for as long as two years after graduation.

Better still, there is normally nothing to stop graduates moving on when the largess dries up. The banks seem to be relying on little more than inertia - they call it customer loyalty - to make these accounts pay.

Students and the newly graduated are worth feting now, the argument goes, because over the years they will more than repay this "investment" through their take-up of other products and services.

As long as they stay, that is. All too often the rules of the financial game are much stricter. Heavily discounted mortgages carry penalties for remortgaging for some time after the discount period ends. Sign up for a top Tessa rate and you will often find yourself penalised if you try to transfer your money once the rate loses its shine.

Barclays Bank, which claims to be the market leader in student accounts, says each student-cum-graduate will cost it hundreds of pounds over this preferential period and that it will take a "few years" before the subsidy is recouped. The financially astute will need no reminder to take the money and run - or be ready to run.

Which begs the question whether the rest of us might be cross-subsidising the financially footloose. Maybe. But equally, there's normally nothing stopping any of us from switching accounts. Banks benefit from our inertia, too.

SAVERS waiting for their free shares from the Northern Rock building society are - not before time - being offered a better deal on interest rates, too. Meanwhile, life insurance company Pearl has announced that 2 million of its policy holders will share in special bonuses each worth an average of pounds 175.

Northern Rock's move follows criticism that building societies that have announced windfalls are able to get away with stingy interest rates because savers feel they cannot touch their money without reducing - or even losing - their handout.

Some of Northern Rock's rates have been shameful even by these standards. For example, pounds 5,000 in its branch-based instant access account earns just 0.65 per cent gross, barely more than the pittance paid on bank current accounts and significantly lower than the 2.5 to 3 per cent that is the market norm.

But the would-be bank has now launched a new high-interest paying postal account into which holders of existing membership accounts can transfer funds without affecting their windfall eligibility. The Great North Postal Share Account pays 6.25 per cent on pounds 5,000 and became available last week.

This is fine as far as it goes. But the account is only available to savers with pounds 5,000 or more. And savers generally remain in the dark as to whether they can withdraw any of their money without reducing their windfall. It is surely not too much to expect the society to move on this as well - the Halifax and Woolwich have said they will give savers advance warning of when to top up their accounts to maximise their windfalls.

Pearl's pounds 350m windfall, by comparison, is as impenetrable as might be expected from a life insurance company, but basically relates to undistributed past profits, commonly called orphan assets. It will take the form of enhancements to with-profits insurance and pension policies. Pearl is writing to policy holders and has set up an information line on 0645 852 853.