/ Money

Easing the savings trap

Proposals announced today would force firms to give clearer information to savers about the interest rates on their cash savings accounts and when they change – including the end of bonus rates.

A few years ago, I had some extra cash so I found a bank offering what was then a market-leading ISA. So far, so savvy. Feeling smug, and certain my money was working hard, I paid little attention to the account.

Fast forward 18 months and could I tell you what interest rate my ISA was paying? No chance. So I looked for it.

The rate wasn’t on my last statement; nor on my online account. Half an hour later I found it – buried in a hard-to-find page of my bank’s website. My smugness disappeared. The rate had dropped like a stone.

Such experiences were all too common – so in 2014, we launched a campaign to scrap the savings trap. At the time, you told us what you wanted to see.

Among those who commented was Malcolm who said:

‘I want the banks to tell us, with notice, when an account’s interest rate will change, and I would like to see bonus rates that expire after a year stop.’

Well, it looks like the Financial Conduct Authority’s (FCA) been listening – judging by proposals it’s announced today.

What changes are planned for savings accounts?

The regulator will force firms to provide clearer information on the interest rates on their cash savings products, and make them clearly alert customers to changes, including the end of bonus rates.

It’s also making it easier and quicker to switch between providers. No doubt it’s heard horror stories from people who’d tried to switch ISA providers to get a better deal then found it took months, with anxious periods when it appeared as though their savings had disappeared altogether.

Banks and building societies have left customers languishing in poor-value savings accounts for far too long.

Today’s move is a significant win for savers. Many people never switch savings accounts because they think it will make little difference, so it’s good that the FCA has listened to our calls to make savings providers do more to help you get a better deal.

The FCA is also proposing to publish information to highlight firms who pay poor interest rates to longstanding customers.

You might wonder what impact this will have now, when interest rates on savings accounts are pretty pitiful.

But things will improve, and when they do, you should now be a bit more confident that your savings provider, and the regulator, will be doing more to make sure you’re getting a good deal.

What do you think of the planned changes?

Comments

The entire savings system needs to be simplified and its small print modified. Good design is simple, functional and effective. The current savings procedure is both complicated and dogged with petit restrictions. It needs a major overhaul.

John says:
25 July 2015

Lets face it, savers are being exploited to help pay the debts of people and organisations that have borrowed too much and help restore their coffers. To my surprise I received a letter from the chief exec of the West Bromwich Building Society that said just that when I wrote and complained about their rates!

Interesting comment in the Financial Times yesterday by the columnist Gary Silverman: ‘Call me a cockeyed optimist, but I’d bet that our banks would do better in the long run if they tried to serve the people in our communities rather than to steal from them’. Quite.

Anne Leedham says:
26 July 2015

I’m in a fortunate position at the moment. Low interest rates have allowed me to continue to pay my mortgage after having had to take early retirement through redundancy tow and a half years ago and not being able to get another regular job due to caring responsibilities. I am now about to pay off my mortgage just a few months before interest rates are finally expected to rise, which will give my savings a boost. But I realise this may well only be temporary unless the banks and building societies make the changes we all have a right to expect.

Rosemary says:
26 July 2015

Great move forward. When will it come in?

I presume the banks are requesting a lengthy lead-in period so they can tweak their computer systems, recast their savings offerings, and draft a new set of correspondence templates.

A customer-oriented bank will not be waiting for the official implementation date to be announced by the FCA, they will have anticipated this and have their system ready to go forthwith. Who would like to guess which will be the first bank or building society to adopt this procedure?

Maidens says:
26 July 2015

It’s a Disgusting, Diabolical, Immoral and Unethical shame that people who have worked and paid their Taxes and Dues at every turn should be subsidising the Banks to get them out of the fertiliser they got us all into, by paying such derisory interest rates, to allow them to Boost Profits..
They and the current crop of idiots who call themselves Politicians are in each others pockets to keep a floundering economy alive.
Why the intelligentsia of society continues to let them continue only Apathy knows.

I am as displeased as most people by the returns on savings accounts but I have yet to discover how interest rates can go up without a rise in inflation. As a nation we are borrowers rather than savers so a rise in rates would hurt far more than it would benefit. Do we want higher mortgage repayments, bigger credit card bills, and even more onerous credit acceptance criteria? There are savings accounts and other investments available that will beat current inflation [as well as some that won’t, which is why people need to keep an eye on their statements and act when they receive a notification of an adverse rate change].

Barrie says:
26 July 2015

Gradually a noose is being tightened around the necks of the predatory Banks, but very slowly. At one time some of the better banks would show the relevant % being paid on ones online account, this ceased and it is now not straightforward to find out the % paid at any given time. All part of the dishonest smoke and mirrors. What a disgraceful history the Banks have!

brian craggs says:
27 July 2015

The banks are already taking steps to off set any loss from this,by charging more for loans to home buyers.The greedy so and so’s will make sure they are winners.How else are they going to maintain their large salaries and even larger bonuses

Bryan says:
27 July 2015

ISA’s are only one example of where interest rates can change sneakily or not. What about all other credit interest earning products offered by the banks? Will the legislation changes apply to all? Is it just banks or will building societies, Post Office, insurance companies etc be covered too? Will debit interest payable also be covered (ie on loans, mortgages, accounts over-drawn etc? Will the legislation include a standard system for quoting interest rates (credit & debit interest) that MUST be used for ALL products thus allowing easy comparison between products.

I managed to dig the FCA’s press release out of their website but it doesn’t answer many of the questions raised here. The proposed measures will apply to cash savings accounts. There is no mention of other interest bearing investments or interest charging accounts [borrowings]. I presume the changes will apply to all cash savings accounts offered by institutions that are regulated by the FCA which covers banks and building societies, mortgage and insurance brokers, and financial advisers.

Included in the proposals are –
• Removing complex jargon and helping customers understand their options.
• Being clear on what interest consumers are getting.
• Quicker and easier switching.
• Seven day switching for cash ISAs.
• Making it clear which firms pay the lowest rates.

The FCA is seeking feedback on these proposals and is expected to confirm finalised rules later this year. They intend for the rules to come into force in 2016.

Mr & Mrs Chavda says:
27 July 2015

We are robed in every way since 2009 after financial collapse. Not only we not getting lowest interest rate but it out weight the charges so in end we are loosing out capital.we invested 200000
In R B S for five years. Only got what we have invested. On other hand we were paying interest only mortgage 5%. We couldn’t draw to pay for mortgage. While Fred Goodwin had 10 million for manning R B S bankrupt. We been planing since eighties for retirement, some of investments gone
Down drain so now we are struggling to pay all bills. Labour sold all assets, gold reserve and kept on borrowing to pay for dole and benefit to people.

David Davies says:
28 July 2015

I would love to be in the fortunate position to be able to save, 2 months ago, we lived in the Land of Milk and Honey, where money seemed to be no object – and the economy was allegedly booming. Last week 40% budget reductions were announced – except in the den of iniquity.

What happened?

EAR says:
29 July 2015

About time something changed for the better with this savings business. I for one am fed up with constantly searching for best rates finding many under unrecognised names. There was a time when you simply left your savings in one or two places. Most of my savings accounts and associated products over quite a long time were with one bank who I trusted. Now I have no savings with them because of deals offered. But it is the only way, albeit small, that I can get a little better interest. An unraveling of the whole savings industry is overdue.

Cliff Cover says:
30 July 2015

The FCA is as usual too weak, asking Banks and Building Societies to behave better will mean nothing. It should be compulsory for the Interest Rate to be shown on all correspondence and when you check the Account on line. There should be a financial penalty if the provider fails to advise the Saver of any rate change or when a fixed term for the Account or any Bonus is ending.

It is all very well saying check when the offer finishes & move your money but our “Oldies & Goldies” do not want or are sadly incapably of doing this – & they are frequently reliant on their savings interest to help with their everyday expenditure.

Please do not say that “the kids” should deal with this for them as they are frequently fiercely independent & consider the offer of help as interference.

David Smith says:
6 August 2015

I have an ISA with Nationwide. When I opened the account it was paying a very good interest rate. Twelve months later the interest rate dropped significantly. I was advise that “A new ISA” was available but, I would not be allowed to transfer the money from the existing ISA to the new one.

Oh, how loyalty is repaid after all the years I have been with Nationwide

Are you sure this isn’t a government requirement as part of the ISA regulations?

David, have a look at Nationwide’s website (Products – ISA). Transferring an existing ISA into a new one seems a straightforward process.