HBOS group - Halifax and Bank of Scotland - are to pay an interest rate of 3% to its three million current account customers, higher than the current rate of inflation.

From cheque clearance to penalty fees the big four banks make a fortune from current account customers. Stuart Cliffe, National Association of Bank and Insurance Customers

The move can be seen as a direct challenge to the so-called 'big four' banks - Lloyds TSB, HSBC, Barclays, Royal Bank of Scotland/NatWest - which pay just 0.1% interest on current account balances.

Two other major High Street names Nationwide and Alliance & Leicester have recently unveiled current accounts that pay interest rates of 2.5% and 3.14% respectively.

Low payers

More than 70% of all current accounts are held between the four largest banks, despite the fact that they have traditionally paid a lower rate of interest.

HBOS claim that by not switching to higher rate accounts, these customers are losing out on as much as �600m.

However, customers have historically been reluctant to change accounts, often staying with the same bank throughout their lives.

But switching bank accounts could soon be made easier following changes to the banking code.

Reforms to the code, which are due to come into effect in March, will mean bank charges caused by errors or delays in moving a current account to a new provider will be waived.

Chink in armour

HSBC spokesman Rob Skinner told BBC News Online that customers' main concern was the flexibility offered by an account and said they were less worried about rates of interest.

"A current account is a way to manage money, we offer high interest accounts for customers looking to save.

Anyway, the benefits to the customer of paying interest on current accounts is small change when compared to, for example, offering a lower mortage rate."

Stuart Cliffe, chief executive of the National Association of Bank and Insurance Customers (NABIC) told BBC News Online that while the HBOS move was a welcome one, it was only a small step.

"From cheque clearance to penalty fees the big four banks make a fortune from current account customers.

"It is a chink in the banks armour at last, perhaps eventually the big banks will accept the idea that customers are entitled to receive a proper rate of interest."