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.
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.
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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.
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.
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.
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.
