In a move to retain its most lucrative customers, banks have begun tailoring interest rates for borrowers and savers. The profitability and loyalty of a customer may now determine the rate the person receives for a savings account, mortgage, credit card, or loan.
This is causing some people to think twice before changing financial institutions.
Last week, Nationwide announced the lowest UK loan rate, 6.7 percent, for a five-year loan of between £7,500 and £14,999. Only Nationwide Flex-Account holders are eligible for these cheap loans. Everyone else must pay 6.8 percent.
Experts predict that deals like these will become more common as the competition for retail deposits among banks and cherry picking of borrowers continues.
Under a European law that went into effect in February, only 51 percent of approved applicants must be provided an advertised loan rate. This is a decrease from approximately two-thirds and represents additional opportunity to base lending prices on customer profiles. Institutions like Lloyds have stopped mentioning loans APR altogether in ads, creating a practice of personalized pricing.
Loyalty products are based on how profitable a customer is to the bank. Creditworthiness is no longer to only factor focused on by financial institutions. Credit cards already feature personalized rates for borrowing. Credit card companies are now personalizing bonus offers based on customer loyalty.
Some banks now offer their best rates to only the most significant investors. The Premier Bank Account from HSBC includes free ATM withdrawals worldwide and free travel insurance. It is only available without a fee to customers who have £50,000 in investments or savings with the bank or those who have an income of at least £100,000 and an HSBC mortgage of £300,000 or more.
Premier account holders have access to one of the best rates for regular savings available, currently eight percent.