Where to go now Zurich's flying pigs have been grounded

A bank that guarantees its customers a high rate of interest for life, with no hidden charges, no minimum deposit requirement and an automatic fee-free overdraft?

"And pigs might fly," many people would have muttered, thinking that was an offer too good to be true.

But it wasn't. Last January the online Zurich Bank was launched, offering all of these things. There didn't really seem to be a catch, and an estimated 50,000 people signed up.

To ram the point home, parent company Zurich Financial Services spent millions on TV advertising featuring three pigs flying over the Dorset countryside to the stirring 633 Squadron theme.

But now the pigs have plummeted to earth and the chickens have come home to roost. This week the plug was pulled on Zurich Bank -it is shutting down early next year, the victim of a sweeping cost-cutting exercise.

What then will the closure mean for customers and what new homes might they consider when placing their money?

Zurich says its online banking arm will be withdrawn in spring 2003. "Normal service will continue for existing customers in the interim period, but as of today [Thursday], Zurich Bank will no longer accept new customers," says a spokeswoman.

Set up in partnership with Bank of Scotland, Zurich Bank went live to the public on January 16, offering savings and current accounts.

Where it really made waves was the pledge it made to customers - it was the first bank to guarantee a high in-credit interest rate and a low authorised overdraft rate "for life" by promising to track the Bank of England base rate.

So, what happens now? The bank spokeswoman says customers don't have to do anything yet. They can stay where they are until spring 2003 or can move their money at any time.

"In the meantime, the bank will operate as normal for existing customers, with interest being paid and transactions being processed as usual," she adds.

However, those using their Zurich Bank account as their main current account shouldn't wait until the last minute to bail out because it can take up to three months to switch to another bank and get all the direct debits transferred over.

Customers will be offered the option to transfer to Halifax or Intelligent Finance bank accounts. And to soften the blow, Zurich will make a one-off "goodwill payment" to customers for the inconvenience caused.

This will be 5% of their cleared balance as at midnight September 4, with a minimum payment of £200. Some people with large sums stashed away will receive quite big pay-outs - if you've got £20,000 in there, you will get a £1,000 windfall.

So, if you want to go now, where should you move your money to get a good rate? If you're a saver, there's no shortage of choice. There are better rates around than the 3.45% Zurich Bank currently pays - but they don't come with a lifetime guarantee.

With First-e and now Zurich Bank shutting down, some may decide they've had enough of internet banks. If you're still happy to save online, Abbey National's internet bank Cahoot recently launched a savings account. It currently pays a decent 4.3% to those saving between £1 and £249,999. However, the interest rate drops to 3.9% in any one month in which savers make a withdrawal.

Intelligent Finance, Halifax's net and phone bank, offers a rate of 3.8% from £1. Meanwhile, Halifax offers an online account called Web Saver paying 4.05% (3.4% if you opt to take a cash card). Both are no-notice accounts.

Other good payers identified by Moneyfacts (www. moneyfacts.co.uk) include Abbey National's eSaver (4.25% - includes a 0.5% bonus for the first six months, minimum deposit £500), Coventry building society's NetSave Instant (4.4%, minimum deposit £500) and Egg's internet-only account (4%).

In addition to IF's offering, decent-paying non-internet savings accounts include Scottish Widows Bank's Instant Transfer phone and post account (from 4.05%, includes 0.5% bonus for six months) and Cheltenham & Gloucester's Tracker phone account (3.85%, minimum deposit £100).