Personal Finance: Bank on a higher rate

TAKE a pre-arranged overdraft at Abbey National next week and it will cost 9.9 per cent - half last week's rate.

So while it was in line with the high street banks last week, this week it is seriously undercutting them.

Newspapers may be having a price war as accusations of predatory pricing fly about. But with banks it is different.

Nobody seriously thinks that the Abbey is going to wipe the floor with NatWest, Barclays and the rest.

And why not? Because we, the consumers who buy their money, are not terribly sensitive about the price we pay for it.

It seems a strange ordering of priorities that someone will change the diet of information and opinion they digest daily for 10p, but will not be moved to change banks or credit card providers for a better deal.

Borrow, say, pounds 5,000 to buy a car. And if you manage to repay it all in a lump at the end of a year, the difference between the new Abbey rate and the rate charged by NatWest, Lloyds or Barclays will be more than pounds 1.50 a day.

Quality newspapers may regret widening their readership as advertisers are not willing to pay pro rata increases for higher circulation if the new readership is less select than the old.

But banks can control who they allow to join their club. The banks that restrict customers to those thought to be the least likely to become unemployed, devil-may-care or just plain broke can charge lower overdraft rates and still make profits.

The high street banks have set up their stalls to attract everyone, and with this higher risk profile need to charge more to make the same profits as a niche player, assuming that all customers get the same package.

They have made attempts to stratify their customers by issuing gold cards and the like . But this risks enraging existing customers who are not allowed to join in the fun.

So the lower-risk customers are paying more than they 'should', thereby subsidising the higher-risk customers.

This begs the question of how accurately banks can assess the risks of unemployment and financial downfall. A steady middle earner is a better banking bet than a high flyer who drops to the ground like a stone. But a high flyer who stays airborne is better still. The trick is to spot which is which.

There is an element of arbitrary power and nonsense science in the profiling that decides the fate of individuals, which they are powerless to influence.

Ian Lindsay, banking director of Save & Prosper, which charges its select band of customers 7.75 per cent for overdrafts, says that if customers were more sensitive to rates there would be a stampede to his door - even if many would not be allowed through. But there isn't.

So if extra customers are not going to flock to the doors of banks and building societies offering better rates, then there is little incentive for them to do so.

There is a social and even an economic argument for widening access to banking. But you could hardly blame financially literate citizens for pursuing their own interest and flocking to the sleekest deal that will have them.

It just seems strange that they don't bother.

PPP pioneered cut-price medical insurance that delivered private care if the NHS waiting list was longer than six weeks. It now seems to be signalling the end of this quasi-private cover.

Last week it decided that those suffering from 10 common complaints where the NHS lists are usually longer than six weeks anyway can forget the magic formula and have instant private treatment.

So anyone needing their tonsils or gall bladder out need not go through the charade of getting a consultant to check that the lists are more than six weeks long.

Patients will feel that they are getting a better deal, but it costs PPP nothing.