Abbey National, the mortgage bank, yesterday moved to attract more than one million customers from its larger rivals by introducing a current account with a market-leading interest rate of 3 per cent.
The development raises the bar on current account credit interest from the 2 per cent being offered by Halifax and Bank of Scotland. However, Abbey's main competitors immediately refused to follow suit.
Current accounts provide retail banks' main source of income as well as a captive audience for the sale of pensions, insurance and financial advice and Abbey aims to increase its current account customer base from 2.8 million to 4 million by the end of 2003. Royal Bank of Scotland/NatWest, HSBC, Barclays and Lloyds TSB control 70 per cent of the market and have 27 million customers.
Andrew Pople, Abbey's retail banking chief, said the timing of the move reflected the introduction in November of an automated switching system for current accounts. "We expect a significant jump in non-interest income through cross-selling other financial products," he said.
There is no formal guarantee about how the 3 per cent rate will change.
The Consumers' Association applauded Abbey's move but voiced doubts over the likelihood of a shake up in the market. The Big Four banks, which pay 0.1 per cent on current account balances, said they had no plans to imitate Abbey's move.
Abbey customers are also being offered another account with an overdraft interest rate of only 8.7 per cent. Existing customers will be transferred to either of the two offerings only if they contact their branch and will be charged £10 for switching between them. Those opting for the account paying higher interest on credit balances will see their overdraft rate rise from 9.9 per cent to 14.9 per cent.
Abbey said the moves would cost it £25m this year, mostly due to the higher credit interest payments. Less than one-third of current account customers use their authorised overdraft.
Peter Toeman, analyst at Morgan Stanley, said: "Abbey's progress on current accounts has been lacklustre, with poor customer acquisition rates. It is more likely to succeed now."
Abbey shares closed up 16.5p at 1,000p.Reuse content