Sainsbury opens bank with high rate for savers

The prospect of a price war on savings accounts moved a step closer yesterday when Sainsbury's launched its banking operation with a range of accounts and credit cards with highly competitive interest rates.

With an instant access account offering interest of 5.75 per cent on balances as low as a pound, analysts said Sainsbury's move could force high street banks and building societies to offer better rates. Rates on similar accounts offered by rivals such as Halifax and Barclays are as low as 0.5-0.75 per cent.

Neil Baker, banking analyst at Dresdner Kleinwort Benson, said: "There is potential for a deposit price war and the supermarket moves are just another step towards it. To win business you've got to be offering 5 per cent."

Building societies which have retained their mutual status are trying to poach customers by offering better rates than rivals which are converting to banks. The price battle is expected to escalate after the lock-in effect of the Halifax and Woolwich conversions lapses.

Midland Bank admitted the deals offered by supermarkets would increase competition but said: "We try to give customers what they want rather than compete with new entrants."

Though Tesco and Safeway have already launched deposit accounts, Sainsbury's Bank represents the most significant move by a supermarket into financial services.

The instant savings account is a 24-hour telephone banking operation which offers a cashcard that can be used in 10,000 Link machines. There is also a Christmas Saver account for customers who want to put away a regular monthly sum.

The accounts do not come with cheque books or facilities for overdrafts, direct debits or standing orders. However, Sainsbury's hopes to launch a full current account service in the next few months.

Sainsbury's has also launched a standard Classic and a Gold credit card with competitive interest rates of 18.5 per cent and 14.7 per cent respectively. Purchases attract points on Sainsbury's Reward card.

Customers who transfer their outstanding balances from their credit cards to Sainsbury's Bank will receive up to pounds 60 or 6,000 Reward points.

Sainsbury's marketing director, Kevin McCarten, said: "We believe we have a clear lead on this. The interest rates are dynamite and it is because we do not have the high costs of a branch network that we are able to offer these terms."

He promised more products would be offered during the year, including personal loans, mortgages and insurance.

Sainsbury's Bank, which is operated in conjunction with Bank of Scotland, opened for business yesterday in 244 stores. It is being launched in Scotland, northern England and the Midlands but will be rolled out nationally over the next few months.

Savers on the move, page 21