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Last updated: June 11, 2011 9:27 pm

Loyal customers receive tailored rates

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Banks are tailoring more rates to savers and borrowers in an attempt to hold on to their most lucrative customers.

Providers of loans, credit cards, mortgages and savings products are increasingly setting different rates for the same products, depending on the loyalty and profitability of their customers.

This week, Nationwide released the lowest loan rate available in the UK, offering customers the chance to borrow between £7,500 and £14,999 for five years at a rate of 6.7 per cent, but only for those with a Nationwide Flex-Account. Others must pay a slightly higher interest rate of 6.8 per cent.

Providers now only have to charge 51 per cent of successful applicants the advertised rate for a loan, down from around two- thirds, under a new European law introduced in February – increasing the opportunity to price borrowing according to their customers’ profiles. Some providers, such as Lloyds, are avoiding the mention of rates in their advertising altogether, making a virtue of “personal pricing” for individual customers.

As banks continue to compete for retail deposits, but cherrypick their borrowers, such loyalty deals will become more commonplace, says Kevin Mountford at moneysupermarket. “Banks are getting clever at analysing their customers,” he says. “Where once they were only interested in how creditworthy you were, now they are working out how profitable you are to them. If you are, then it’s in their interest to keep you – hence the rise in loyalty products.”

Personalised borrowing rates are already a feature of credit cards. But providers are now including differing bonus offers along with rates to existing customers. Halifax offers customers who have a current account a 0 per cent balance transfer period of 13 months on its credit cards, and 0 per cent for all purchases for the same period. Non-current account holders are given 12 months.

But customers cannot hope to beat the system by opening multiple current accounts and then shopping around for the best rates. Providers are wise to this tactic and now offer loyalty rates only to customers who use the linked account as their main current account, paying a minimum monthly income into it.

Some have gone further still, reserving their best rates for those who invest significant sums of money.

HSBC Premier Bank Account, which offers free travel insurance and free worldwide ATM withdrawals, is available for no fee to customers with savings or investments of £50,000 with HSBC, or customers with an income of £100,000 or more and a mortgage of at least £300,000.

Premier customers can access one of the best regular savings rates on the market, paying 8 per cent. The best non-loyalty regular savings account, available from Norwich & Peterborough, pays 5 per cent.

Barclays Bank Premier Life Bank Account, which offers extra services for a £25 monthly fee, drops this price to £17.50 for customers with an income of £100,000 or more, or for those with £50,000 or more invested with the bank.

“Risk-based pricing has been around for a while, but pricing based on profitability and the value you have to a provider is something different,” says Mountford.

Loyalty mortgages have also become a fixture of the best deal tables from financial information groups such as Moneyfacts.

Halifax offers a 0.20 per cent discount on mortgages to current account customers, and Woolwich, the mortgage arm of Barclays, has launched a two-year fixed-rate mortgage at 2.99 per cent as part of its loyalty range available to current account holders.

Louise Holmes at Moneyfacts says that, as well as rewarding customers who keep their money with the bank and who can be sold other products, existing customers are easier to credit check than new customers, which could explain part of the price difference.

But although banks are rewarding profitable, loyal customers, tied products are not always the best in the market. Credit card holders with Barclaycard can get 20 months’ 0 per cent balance transfer, with or without an account at the bank, which is by far the longest term on offer.

“Customers can still sometimes get a better deal by shopping around for providers keen to attract new customers,” says Holmes. “So, it still makes sense to check before accepting a loyalty rate.”

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