Abbey's 3% on current accounts

ABBEY National delivered a bracing challenge to rival banks as it offered the best current account interest rate and lowest overdraft rate on the High Street. It is giving 3% interest to customers who put at least £1,000 a month into their current accounts or charging an annual percentage rate of 8.7% for those with authorised overdrafts.

Barclays, HSBC, Lloyds and Royal Bank of Scotland (including NatWest) pay current account interest of just 0.1%.

'We think this will really rattle the cages of the big four. Half a million people in Britain switched current accounts last year. We think it will be close to a million this year,' said Abbey retail managing director Andrew Pople.

This time last year, Halifax paid a record-breaking 4% on current accounts. That is now 2%.

'We are offering customers either high current account rates or low overdrafts, which we think is more sustainable than the Halifax offer,' said Pople.

The strategy will cost Abbey around £25m this year but it hopes to make money by gaining 'higher quality' customers. Abbey has also taken on 500 staff to boost service for those looking to switch accounts. Next week, the bank is to unveil new rates for business customers.