Abbey cuts current account rate

ABBEY National has slashed the top interest rate for 1.4m current account holders from 3% to 2.5% - double the 0.25% cut made to the base rate by the Bank of England two weeks ago.

Abbey insisted it has not backed away from a fierce current account war with Halifax. 'If you compare our account apples for apples, 2.5% is still better than you get elsewhere on the High Street,' said spokeswoman Hannah Chance.

Halifax continues to pay 3% but the Big Four banks, who have more than 70% of accounts – around 23 million - pay most of their customers just 0.1%.

Abbey, the UK's sixth largest bank joined a competition war 18 months ago when it hiked its current account rate from 0.1% to 3%. Halifax provoked the battle a year earlier by offering 4%. Lloyds TSB, however, has been the only Big Four bank to hit back, increasing its rate from 0.1% to 3.2% earlier this year, although various onerous conditions apply.

Abbey has blamed its decision to cut on the falling UK base rate. It previously resisted passing on a 0.25% base rate in February but has now effectively passed on both reductions together.

The bank declined to say how many new customers had been enticed by the 3% rate in 18 months, and who may now be left disappointed, but its results for 2002 revealed a near 10% increase to 1.4m.

Abbey also argued the change, which will take effect on August 1, would only cost 43p a month for customers with an average £1,000 balance. Only account holders who pay in more than £1,000 a month qualify for the top rate. The rest receive 0.1%.

The Consumers' Association has campaigned for the Big Four to raise current account rates and has urged customers to switch banks. 'There are two tiers of banks: those that pay reasonable interest – usually the smaller ones – and those that pay virtually nothing,' said spokeswoman Rebecca Fearnley. 'A rate of 2.5% keeps Abbey in the right tier.'

She added: 'It would be bad news if smaller banks backed off from this fight, but it‘s unlikely. Our research shows that people are becoming increasingly bothered about looking for decent rates of interest on current accounts.'