Halifax takes on Big Four with account paying 5% interest

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The Independent Online

On Monday, Halifax will launch a nationwide advertising campaign to promote the high interest current account, a product paying more interest than any other bank or building society.

The deal is the latest attempt by a current account provider to break the stranglehold on the market held by the big four banks, Barclays HSBC, Lloyds TSB and the Royal Bank of Scotland-owned NatWest.

All of the big four pay just 0.1 per cent annual interest on their standard current accounts, though Lloyds did introduce an account last year offering higher rates to customers who deposit minimum sums each month and use its internet service.

Halifax's new deal is only on offer to customers who pay at least £1,000 into their account every month, the equivalent after-tax earnings of someone earning around £15,000 a year. The account will also charge 15.9 per cent interest when customers are overdrawn.

Halifax said that together with Bank of Scotland it now had a 12 per cent share of the current account market, up from 4 per cent in 1998. Benny Higgins, the HBOS chief executive officer for retail, said: "Customers are voting with their feet and leaving the big four. This account provides another reason to do that."

The big four are also under pressure from smaller rivals, such as the Coventry Building Society, which launched an aggressively priced current account this year, as well as from online providers such as Cahoot and Smile.

However, Rebecca Fearnley, a campaigner at Which?, said the big four's market share remained close to 70 per cent. She said the consumer group's Switch with Which? campaign would continue to lobby bank customers to move away from the big banks.

"There has been more switching going on, but there is a fair way to go," Ms Fearnley said. "People who have switched have found doing so very straightforward, and the big four products are such poor value that it makes sense to do so."

Halifax pointed out that its new account would pay 50 times as much interest as a basic big four current account. The bank has also been trying to build market share with an alternative product that pays cashback based on spending to customers, in a similar way to many credit cards, rather than annual interest.

Michelle Slade, an analyst at the personal finance consultancy Moneyfacts, said: "This looks a pretty good deal - the credit interest rate is excellent, though Halifax's authorised overdraft is quite a bit more expensive than some of the other best-buy accounts."