Abbey raised the stakes in the high-street banking war yesterday, launching a new current account paying 8 per cent interest, available to customers who switch to it from a rival bank.
The account beats its competitors by quite some margin. Alliance & Leicester has the next most competitive current account, paying interest of 6.31 per cent, followed by Halifax, whose high interest current account pays 6 per cent.
Like all high interest current accounts, Abbey's new deal is subject to restrictions. Customers must pay at least £1,000 a month into their account, while the 8 per cent interest is payable only on balances of up to £2,500.
Steve Shore, head of banking at Abbey, said: "We will pay this rate to switchers on balances of up to £2,500 and the only condition we have is that they pay in at least £1,000 per month - in other words, that they use it as their main current account.
"We want to show customers of the 'big four' banks they have a choice and they have no reason to stay with a current account that doesn't offer great value. Our 8 per cent account is a whopping 80 times more valuable than a standard bank account, which typically pays 0.1 per cent on balances."
Abbey also named and shamed its worst competitors, revealing that of the customers who have switched their accounts to Abbey over the year so far, almost a quarter were from Barclays. Lloyds TSB was the next worst, followed by NatWest and then HSBC.
Kevin Mountford, head of current accounts at the price comparison website moneysupermarket.com, said that, while the new account was a good deal, Abbey ran the risk of alienating existing customers by only offering the high interest rate to people who switched from a rival.
"On the face of it, Abbey's new switching account looks a very good offer, demonstrating the battle to gain current account customers shows no sign of ending - we have recently seen Halifax reintroduce its £100 incentive," he said.
"But the fact this is clearly for 'new customers only' risks alienating Abbey's existing account holders. A further word of caution to customers - look beyond the interest rate and make sure that the product features and conditions are right for your needs, such as what the overdraft rate is and whether there is a strong commitment to customer service."
Mr Mountford said account switching levels had increased in recent years, with some 13,000 people now reported to be changing their bank every day.
"As the 'war' continues and the banks make the switching process better, this number could increase," he added. "Typically, current accounts were the financial services product with the highest level of inertia among customers, but this is changing and the gloves appear to be off now as banks fight for market share."
Although high-street banks have offered regular savings accounts with high headline rates of interest in recent years, Abbey is the first to introduce a current account with a rate of interest more than 2 percentage points above the base rate.Reuse content