Two thirds of banks and building society accounts offer interest rates below the Bank of England base rate...
BANKS and building societies in Britain maneuver unwitting savers into accounts paying significantly below the market rate. It's a complaint we hear persistently, writes Simon Rose of campaign group Save Our Savers.
Although a few building societies are currently offering over 3% on savings accounts – still below the inflation rate, of course – a recent study by UK-based financial research firm Defaqto found that an extraordinary two thirds of all accounts offer interest rates below the Bank of England's record low base rate of 0.5%.
In many cases, savers will have opened accounts that initially paid attractive rates and not noticed that, over time, the account has become steadily less competitive. It is commonplace for accounts to offer appealing introductory rates for a limited period, the bank clearly trusting that many savers will forget, or simply not be aware, that the rate will later tumble.
Over half of cash ISAs pay such opening bonus rates. However, it is not only existing accounts offer lamentable rates of interest. Several savings accounts currently being advertised by banks pay as little as 0.05%
That is why one of the aims of Save Our Savers is that:
"Savers must be informed if their money is in 'deadbeat' accounts paying substantially below market rate and offered simple transfers to competitive accounts."
It is clear that many financial institutions rely on savers not realizing how little they are receiving on their money. One SOS member, Mr. Tandon, a retired orthopedic surgeon, did notice that his acknowledged instructions to switch his ISA had not been carried out and that his wife's long-standing ISA was paying an uncompetitive rate of interest.
Instead of shrugging his shoulders, he complained. It took a phone call, several visits to the branch and a meeting with a manager but, finally, they got the Halifax to offer compensation. As a disillusioned Mr. Tandon says: "At no time did anyone inform us that the rate had gone down dramatically and that there were other better options. We feel this should be the responsibility of the banks."
So do we. Credit card companies must explain the rates charged on statements. Why should this not be mandatory on the statements of savings accounts too, whether on paper or online? Banks and building societies should also inform investors when bonus rates are about to expire.
Until they do, it is clearly up to savers to check regularly that they are getting competitive rates on their savings. If you open an account with a bonus rate for a particular period, make a diary note of when that period expires. Each financial year, check that your ISAs are competitive and, if not, open new ones with better rates that allow existing funds to be transferred in.
There is an all-too-human tendency for savers to feel loyalty to a bank or building society if they have had an account there for some time. This may not be wise. Financial institutions rarely show loyalty in return. Indeed, some new high-rate savings accounts are at present open only to new customers, not to those who already saving there.
Inertia, unfortunately, is the friend of the banks and the enemy of savers.
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