Millions of savers are unaware that they are receiving no interest on their accounts, as banks continue to cut rates without explicitly telling their customers.
Times Money readers say that banks bury interest rate changes among complex changes to the terms and conditions of their account, which most people are unlikely to bother reading. Lloyds TSB told one reader (see case study, below) that he was not informed that his interest rate had plummeted because he had ticked a “no marketing” box.
Since November last year, anyone with an instant-access savings account or current account is supposed to be told by letter or e-mail two months before any reduction to their interest rate. This will also apply to Isas, fixed-rate savings and child trust funds from May, under the Financial Services Authority’s new regulations.
However, consumer groups say that even under the new rules banks cannot be trusted to be transparent with their customers about interest rates.
A spokesman for Which?, the consumer champion, says: “Banks need to be clearer and more open in the way they communicate with their customers if they want to rebuild the trust that has been so badly damaged in the past 18 months.”
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Experts say that anyone with a savings account that is more than 12 months old is likely to have a dismal return. David Black, of Defaqto.com, the comparison website, says: “Loyalty doesn’t pay in the savings market so savers should move their funds to a better-paying account regularly. If you’ve had the same variable rate account for a while, it is highly likely you can improve your return by switching to a different savings account.”
Bonus interest rates, which usually end after nine or 12 months, make up more than half of the interest rates on easy access savings accounts. But once the bonus period ends, rates usually plummet. This time last year, for example, the Tesco Internet Saver account was paying 6 per cent, including a 1.5 per cent bonus for 12 months. However, the rate is now only 1.25 per cent. Similarly, ING’s Savings Account, which paid 5 per cent, now pays a measly 0.5 per cent, barely enough to cover inflation.
“Savers in easy access accounts are more susceptible to losing out, as those with a fixed-rate account know from the beginning that their rate is guaranteed for a set period,” says Kevin Mountford, of Moneysuper market.com, the comparison site.
David Jones, a Times Money reader from East Sussex, has a Barclays e-saving reward account at 1.25 per cent, which includes a 12-month bonus. When the rate dropped to 0.5 per cent after his bonus expired recently, he was surprised to find that the account was still being advertised at 1.25 per cent. “Barclays told me that I should close the account and reopen another for a12-month period to benefit from the extra interest, making a lot of unnecessary extra work for the customer,” he says.
Banks and building societies regularly launch new, best-buy savings accounts while cutting rates for existing customers. The danger is that these accounts often have similar names. So if a saver sees an advertisement for the new account, he or she might assume that it is the same as their existing account. In fact, the new account is likely to be paying a much higher rate.
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For example, those who invested in Citibank’s Flexible Saver Account (Issue 4) last year are receiving only 1 per cent interest, but the Flexible Saver Account (Issue 7) is currently advertised at 2.47 per cent.
“Savers must ensure that they know the exact name of their account and check their interest rate regularly. It can sometimes be difficult to find interest rates for old accounts on provider websites, so it may be easier to phone the bank or go into a branch to find out the current rate,” says Mr Black.
If your account is paying virtually nothing and you want to move the cash to somewhere paying a higher rate with easy access, National Savings & Investments pays 1.7 per cent on balances of more than £500, or 2 per cent at £25,000. Alternatively, West Bromwich building society is paying 2.65 per cent. If you are unlikely to remember to switch your money every 12 months, moneyfacts.co.uk allows you to compare the accounts that have performed consistently well over the past 18 months; Intelligent Finance’s isaver is currently best at 2.49 per cent.
The only way to guarantee a high rate is to lock away your money in a fixed-rate bond. Derbyshire building society, now owned by Nationwide, is offering 3.25 per cent for a year, but you cannot make withdrawals. Nationwide is also offering an excellent return of 4.25 per cent on its three-year bond, although this is available only to existing Flex-Account Customers.
Case study: ‘We were duped by Lloyds TSB’
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David and Dilys Cordingley (pictured above), of Teddington, Middlesex, were astonished to find that their savings account with Lloyds TSB was paying only 0.1 per cent interest.
The Cordingleys, who have banked with Lloyds for 21 years, opened an internet savings account paying 5 per cent in October 2008. “By July 2009 I realised that the interest rate did not appear when I logged into my account,” Mr Cordingley, 68, says. “I went to the savings and investments page on the website and found that the account was not listed. When I queried the rate with a Lloyds staff member, he said that we should have switched accounts if we wanted a higher return.”
The Cordingleys made an official complaint to Lloyds, but the bank said that because they had ticked a “no marketing” box they would not be informed of changes to their interest rate. Mr Cordingley has taken his case to the Financial Ombudsman Service.
“It’s not that we have lost a lot of money, it is the fact that the bank held on to our money under false pretences that makes us so annoyed,” he says. “It is daylight robbery.”