Lloyds TSB has upped the rate of interest that it pays to its current account holders.
Existing customers may feel 'miffed'
The bank has announced that from 1 December it will pay new current account customers 4.5% interest rate.
However, existing customers will not be eligible for the highest rate of interest in a move that has angered consumer groups.
In response, Lloyds TSB said it was within its rights to offer new customers a higher rate of interest.
Lloyds TSB launched its controversial introductory two-tier interest payment system in September.
Under the new system, Lloyds TSB Plus current account will pay new customers depositing more than £2,000 a month an introductory 4.5% interest rate up from 4.2% - better than most high street savings accounts.
Meanwhile, new customers that pay in more than £1,000 a month will receive 3.83% interest up from 3.53%.
But existing customers, who may have been with the bank for many years, will receive 1% less than new account holders.
The group justified its decision to pay new customers more on the grounds that it was common practice in the credit card marketplace.
"Credit card holders have benefited from introductory rates for years, now customers who want to switch to Lloyds can take up this fantastic offer," A Lloyds TSB spokesperson said.
According to the bank the new introductory interest rate is guaranteed until the end of 2004.
The great divide
New customers paying in £2,000 receive 4.5% up from 4.2%
New customers paying in £1,000 receive 3.83% up from 3.53%
Existing customers paying in £2,000 receive 3.5% up from 3.2%
Existing customers paying in £1,000 receive 2.83% up from 2.5%
Source; Lloyds TSB
Lloyds TSB's move is the latest in a high street bank price war.
In January 2001, Halifax became the first of the big UK banks to start paying high rates of interest to its current account customers.
Since then Alliance and Leicester and Lloyds TSB have followed suit.
Consumer groups although welcoming the rate rise, are dismayed that Lloyd TSB still pays its existing customers less than new ones.
"If I was an existing customer I would feel pretty miffed about it. We would hope banks would reward loyalty rather than the other way around," Rebecca Fearnley, principal researcher at Which magazine, said.
Stuart Cliffe of the National Association of Bank and Insurance Customers (NABIC) called for the Banking Code Standards Board (BCSB) - the body responsible for the administration of a voluntary code guaranteeing minimum customer service standards - to put a halt to introductory rates on current accounts.
"This is a bit of a slap in the face for existing customers action needs to be taken - if it isn't outside the letter of the banking code it is certainly against the spirit," Mr Cliffe said.
On Monday, the BCSB told BBC News Online that they had looked into the Lloyds TSB move and had decided that it did not break the banking code.