Abbey National's Cahoot moved yesterday to prise the initiative away from the Halifax's IF in the battle of the Internet banks for new customers.

Both banks have a target of 200,000 customers in the first year, but Cahoot said it was ''throwing down the gauntlet to Internet banks'' with a market-beating savings rate and a credit card cash giveaway.

Cahoot launched in June but waited until yesterday, a few days after IF's much-delayed launch, to lift the rate on its current account to 6.5% - a full 1.5% above the 5% offered by IF, which itself had pitched in at a higher rate than rivals Smile and First-E.

Cahoot's rate rises to 7.1% on balances over #5,000, cleverly topping the 7% paid by Nationwide - though the building society pays 7% on #1 upwards providing savers also have

a current account.

Internet pioneer Egg pays 6.3% on

a purely savings account with no strings attached.

IF chief executive Jim Spowart said of Cahoot's new rates: ''This looks like yet another loss-

leading offer designed only to lure customers.

''No doubt Cahoot felt they had to do something to respond to the unparalleled strength of our consumer offering. It is time the industry moved on from such

tactics.''

Cahoot spent #31m on its launch, which was marred by a technology malfunction, and says the new rates will cost it #5m - if its targets are met.

The Halifax says IF will lose #90m this year, and spokeswoman Heather Scott said yesterday that the bank was on target, in spite of the costs of a second launch. The initial launch was budgeted at #15m. Scott said: ''We have rescheduled the television adverts and have not created any extra expenses.''

IF insists that customers will flock to its unique offer of five interlinked products, its software enabling the customer's cash to be directed to the most profitable home at any given time.

The bank said yesterday it already had almost 5000 customers including 2000 current accounts, and had received over #43m of mortgage applications. The number of products per customer was already at 2.5, compared with traditional banks 1.4.

Cahoot, however, has overcome its launch problems and, unlike IF, is operating over the Internet.

It plans new product releases including market-beating personal loans, a 5% cashback on credit card transfers, and a #100 giveaway with Wap phones.

The Woolwich has said its rivals will miss their targets and that its Open multi-product offer is netting 3.6 products per customer.