/ 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
Guest
David Bricknell says:
24 July 2015

ISA’s seem like a typical banking scam. If you’re a standard rate taxpayer then you are invariably better off with a normal easy-access savings account but the bank has you in a grip which says if you move your money then you’ll lose all your previous savings benefits.

Guest
Chris Goodman says:
24 July 2015

I reckon that the Regulator should make the bankers offer ALL ordinary savings accounts also as cash ISAs at the same interest rate.

Guest
Fiona says:
24 July 2015

I totally agree the Banks are a pain in the neck. Forever changing rats which are crap to begin with

Guest
Ian says:
24 July 2015

In fairness to Tesco Bank, I was informed in writing, and in good time, when the interest rate on my savings account will change. This allowed me ample time to explore the market for a more attractive deal.

Guest
Basil says:
24 July 2015

Isa’s with Barclay’s from September will be less than 1%, it’s no wonder banks pay out such huge bonuses, greed or what.

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Guest

I am a little surprised at the number of people who don’t seem to think they should actively manage their money. I agree that it is reasonable to expect a bank or building society to whom you have lent a sum of money to let you know in advance of an interest rate change, and I am glad this is now going to be mandatory, but it is still sensible to diarise these key events, like the end of a bonus period, so that you can take action in advance if necessary – and it’s a safety net in case the notification does not arrive or you don’t appreciate it’s urgency.

Obviously banks are in business to make money but I wouldn’t want to bank with one that didn’t.

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Guest

I can see some very good reasons why so many people are unhappy with banks and building societies, John.

– In the past, generous interest rates were decreased to virtually zero without informing savers.

– It is common for banks and building societies to replace one account with another with the same terms and conditions and similar interest rate, while lowering the interest rate on the previous account to near zero. I have seen examples where the name of the account differs only in issue number. This is obviously done to catch out the unwary. Simple savings accounts are generally regarded as safe investments. I believe there is a strong case for ending this practice. I am not referring to fixed-term investments.

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Guest

I entirely agree Wavechange and I have consistently criticised the unsatisfactory behaviour of the banks in several Conversations. Given this widely known state of affairs, however, it really does behove customers to take some responsibility for controlling their accounts. The banks are not our friends, we cannot trust them, and unless forced to do so they will not put our interests first. This is well known so we have to take precautions and not be so shocked when we are dumped high and dry on minimal interest rates when the promo rate comes to an end. At least this measure will redress that grievance but there are plenty of others around retail banking conduct that need addressing.

Referring to your first bullet point, on opening a savings account one is usually given [or picks up] a leaflet stating the key features of the account, or if done on-line sees the same information on the screen [and I am not referring to pages of small print t-&-c]. If the interest rate is for a limited period this is invariably stated and it is a reasonable assumption that we will take note of it. Of course, what the banks have never said in that kind of literature is “We won’t send you an advice before this happens so please make a note of it now”. In response to having failed to give their customers that degree of support in the past they are now going to have to do it in the future and hopefully the days of this particular complaint are numbered. But, you can lead a horse to water . . . etc, and it will be interesting to see the eventual result in terms of customers moving their money around; if that happens routinely in pursuit of higher interest rates to the extent that it impacts on bank revenues, then rate adjustments or new terms & conditions will be introduced to mitigate the effects.

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Guest

I am not suggesting that banks should put our interests first, but I do believe it should be possible to put money in a savings account and continue to receive an appropriate rate of interest even without intervention, on the basis that you have given the bank use of your money. I have no objection to fixed-term investments offering higher returns.

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Guest

Agreed. Unfortunately the basis of the rates is the amount of money the banks need from savers in order to lend to borrowers. Since they have been forced to make it difficult for people to borrow money, their need for an inflow of funds has diminished so we get paltry returns; chicken feed almost. And Quantitative Easing has done the real damage to savings accounts [albeit a necessary evil in overall economic terms]. The problem with no-notice savings accounts is that the banks don’t place much value on them because, as you say, although you have given them the use of your money you can get it back at any time. They don’t see that as much of a gift so they don’t do anything to encourage it.

Guest
Edward says:
25 July 2015

After saving most of my working life, it is disheartening to say the least to find that because of low interest rates my savings are being depleted, while you see bankers getting large salaries and huge bonuses

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Guest

I would like to see decent interest rates applied to both ISAs and savings accounts. As things are, it isn’t worth the hassle of changing every year or so just for an additional 0.05% or whatever.

Not only that, but the last time I changed I was paid the higher rate for about 3 months, then I was notified that the interest rate was dropping to the same level as the account I’d just switched from! In mid-year too, never mind waiting until the next April or anything.

I wonder if this happens to everyone? I have no idea whether I, as a recent ‘switcher’, suffered this unexpected drop because I was one of a small group of recent ‘switchers’, or whether it applied to all account holders. If the former, its the sort of scam I would expect from banks. How many other readers have experienced drops in interest rates after switching only a few months before?

Guest
Chris Goodman says:
25 July 2015

This is a fairly frequent happening and needs to be prevented. Logic says that an interest rate offered when the product is taken should be required to remain for a minimum of 1 year.

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Guest

That would lead to either the reduction of introductory interest rates to much lower levels or their complete withdrawal – not necessarily a bad thing perhaps. It is impossible to forecast interest rate movements for a year ahead unless the Bank of England guarantees stability on a rolling twelve month basis which is extremely unlikely and would mean that savers’ rates couldn’t go up if necessary. Every silver lining has a cloud in front of it.

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Guest

Why do banks keep putting the savings interest rates down? My bank, who started paying a decent rate over one year have reduced it to a pittance. The BOE rate has not altered in many years. This is just profiteering at our expense..

Guest
Chris Goodman says:
25 July 2015

So move your money. Interest rates on savings may not be much but there are good rate current accounts. TSB pays 5% on the first £2000, no fee. Santander pays 3% from £3,000 to £20,000 plus cashback from various direct debits, fee £2 monthly.

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Guest

Hi
you might be interested in this.

Here’s a link to our reviews of the best current accounts http://www.which.co.uk/money/bank-accounts/reviews-ns/bank-accounts.

And here’s a link to the best savings and Isa accounts currently available http://moneycompare.which.co.uk/savings-and-isas.

thanks

Guest
Geoff says:
25 July 2015

Sadly banks and bankers have not quite understood their function. Their job is to take in customers money and look after it whilst making some profit lending it safely to other people who need to borrow it. The customer is given a return on his investment in the form of interest. Their function in
now seems to be to use customers money to gamble and make huge profits to make themselves rich. Sadly it all went wrong in the UK when bank account maintenance charges were mainly abolished. Now the customer must remember that banks and bankers are greedy and are in the job solely for themselves. The boring old ways have gone so it is up to customers to make themselves totally responsible for their savings. Saver beware is the order of the day.

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Guest

.Mutual building societies perform that function satisfactorily in my opinion.

Guest
Kathleen Beck says:
25 July 2015

ISA’s have become a trap to keep interest rates low. No account should be able to offer a higher rate than the existing ISA that is also on offer.

Guest
Phil Cooke says:
25 July 2015

Banks should be forced to offer savings interest rates very closely tiered to lending rates perhaps 1% difference and ISA rates similar

Guest

Agree one hundred per cent the banks have used and abused the vast majority of savers for years. This is another important campaign and another important and vital step to try and regain some control and a better deal for the ordinary consumer in this country which is still dubbed as ‘Rip off Britain’

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Guest

I have frequently wondered how we have managed to sleepwalk through the ISA charade. When they were first introduced [as Tax Efficient Special Savings Accounts -TESSA’s] the whole premise was that the exemption from interest tax [because it was a highly restricted form of investment], would mean a higher return for savers. What has happened is that the interest rates on ISA’s have progressively reduced to virtually eliminate any nett advantage so in effect, at Hobson’s Bank, you can get either 2.5% tax free in an ISA, or 3% in an ordinary account but pay tax on the interest.

Guest
Chris Goodman says:
25 July 2015

ISAs were a great idea designed to help savers get a little more from their savings. Didn’t take ,long for the banks to lower the ISA interest rates so the “little more” from all the ISA accounts became a “little more” for the banks. Regulation is needed to make financial institutions offer savings products with an option to be held as an ISA at the same interest rates. The option should be there for all offered savings products to be held as ISAs.

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Guest

I think that the whole issue of small savers needs a drastic overhaul. The government have a major stake in larger banks following the banking crisis and I believe that it would be a good plan to use part of those resources to set up a Peoples’s Bank with services geared to the needs of people on low or middle incomes. This would be a far better use of public funds than simply selling the shares back to the very people who caused a melt-down in the banks with reckless investment decisions.

Setting up this type of bank would help people manage their finances in a way that suits their needs and make small loans at moderate rates of interest available to people who would otherwise be prey for loan sharks. It would also be a good way of helping people to start small businesses and cooperatives which would help to reduce long term unemployment in deprived areas and possibly fund community projects which would help improve the quality of life for residents.

I doubt whether this sort of scheme would be taken seriously however, since the present government are for more interested in maintaining the power base of the super-rich than supporting the rest of the community and promoting their welfare.

Guest
David King says:
25 July 2015

I’ll wait to cheer when if actually happens. Then watch out for the next scam.

Guest
David King says:
25 July 2015

I’ll wait to cheer when it actually happens.

Guest
Keith says:
25 July 2015

I have banked with TSB for the past 30 years and we have substantial savings deposited with them. I agree with the comment about suck you in saver rates, the Bank has written to us this week to tell us the interest we receive on our savings will be reduced to a measly 0.20% gross……0.16% net. However when they sucked us in the rate was around 2.5% now we will have to trawl around other banks to try and secure a decent rate. We are living off our small state pension and have been relying on our savings to top our income up.

Guest
Despondent says:
25 July 2015

I agree current savings rates are abysmal, BUT it is not unreasonable to be expected to control your own finances. Better rates are advertised (e.g. through WHICH) and they all give a clear indication of the duration of bonus rates, so anyone can diarise (if that is a word?) the time to swap to another provider. It is quite easy, I do it every year when the current bonus expires.

My worry now is that bonus rates will disappear as all banks sink to the lowest common denominator!

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Guest

That is a distinct possibility because operating margins are so fine there is little room for incentives unless a high level of customer inertia can be taken for granted and that will no longer be the case.

Guest
Edward Horrigan says:
25 July 2015

For elderly people it is very difficult to find the best saving rates, it can be very confusing, it really needs to made clear and uncomplicated.

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Guest

Persisting low interest rates on savings tempt people to raise their risk tolerance and look at products that are unsuitable for their circumstances. There are plenty of sources of information on the best savings rates – the problem is the rates don’t seem good enough. With the differences between the main providers being fractional I question how much people should worry about their decision. A standard easy-in/easy-out savings account with one of the mutual building societies on your local high street remains a safe and stress-free form of investment with convenient access to funds.

Guest
Lynn says:
26 July 2015

I don’t know if I am allowed to say this, if not I’m very sorry and please delete this. Try the MoneySavingExpert.com

Guest
Keith says:
25 July 2015

I do agree that it is our own responsibility to monitor our savings and take action to move savings around as necessary however, have you tried to open a Bank account lately the hoops you have to jump through, evidence of who you are, residency etc etc, such puts many elderly people off and the whole process can be daunting and extremely intrusive for some. We have the international fraudster community to thank for so many changes I am led to understand.

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Guest

Certainly banks and other financial institutions take their compliance with the Money Laundering Regulations very seriously and it is necessary to submit evidence that you are who you say you are and live where you say you do, but two documents are usually sufficient for that [one for each category]. Personally, I feel better protected as a result of these controls.

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Guest

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.

Guest
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!

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Guest

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.

Guest
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.

Guest
Rosemary says:
26 July 2015

Great move forward. When will it come in?

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Guest

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.

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Guest

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?

Guest
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.

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Guest

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].

Guest
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!

Guest
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

Guest
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.

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Guest

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.

Guest
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.

Guest
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?

Guest
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.

Guest
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.

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Guest

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.

Guest
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

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Guest

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

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Guest

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