Abbey is taking on Alliance & Leicester in the battle for current accounts, trying to lure new customers with an offer of a 0% overdraft for 12 months.
Abbey’s approach is different from most of its other competitors. Abbey has two current accounts, one designed for people who usually have money in their account which pays credit interest of 8.5% on balances up to £2,500 and one for people who often run an overdraft, which has a low overdraft rate instead. It’s the low overdraft rate account where it has just changed the terms to offer a 0% overdraft for 12 months for new customers.
As you can see from the table, the low overdraft current account goes head-to-head with Alliance & Leicester’s Premier Direct - the one that has been winning customers away from HSBC, Barclays, Lloyds and Natwest. In the table, I have excluded accounts that charge a fee, though each of these big four banks do have a 0% overdraft offer of some kind on one or more of their fee-charging accounts.
How Abbey’s Preferred Overdraft Rate Account compares
| Provider | Account name | Initial 0% overdraft period | Normal overdraft rate | Minimum monthly payment | Credit interest rate |
| Abbey | Preferred overdraft rate | 12 months | 12.9% | £1,000 | 0.1% |
| Alliance & Leicester | 12 months | 12.9% | 50p per day max. £5 per month | £500 | 8.5% up to £2,500 |
| Halifax | Current account | 120 days | 18.9% | - | 0.1% |
| Halifax | High interest c/a | 120 days | 15.9% | £1,000 | 6.17% up to £2,500 |
| Norwich & Peterborough | Gold current | Six months | 7.74% | £1,500 | 4.28% |
As you can see, on the overdraft rate itself - once the initial period ends - Abbey is quite competitive at 12.9%.
In fact you’d pay more than that with a free account from any of the Big Four.
Need credit interest? Don't choose the overdraft account
But the key difference between Alliance & Leicester and its rivals is the credit rate on balances you hold in the account. Abbey pays interest at just 0.1% compared with 8.5% at A&L and 6.17% at Halifax (admittedly only up to £2,500 in both cases), or 4.28% at Norwich & Peterborough.
What this means is that if you are in overdraft most of the time, Abbey’s new low overdraft account is good value, but if at least half the time you are running a credit balance of £1,000 or more, then its account shapes up poorly against the competition where you get a good rate of interest.
Moreover, Abbey has until recently featured in more customer complaints than any other bank. The management claim they are getting to grips with the issues, but at the moment, First Direct regularly wins top accolades for customer service and satisfaction in the banking sector while Abbey is stuck at the bottom of the class.
So if an interest-free overdraft appeals, check out both A&L and Abbey. Abbey says it will normally match a new customer’s existing overdraft facility with their existing bank up to a limit of £5,000, while A&L’s upper limit is £2,500.
