Banks in dock for exploiting loyal savers
WATCHDOGS could be about to launch a crackdown on banks that pay shoddy rates to their loyal savers.
The City regulator has been told by its advisers to stop putting the onus on customers to switch accounts to get a fair deal. The regulator says it is now considering action to stop the rip-offs.
Savers miss out on billions of pounds in interest a year because they are left to languish in poor-paying accounts.
In a damning report, the Financial Services Consumer Panel has told the regulator that relying on customers to fuel competition among banks for our savings does not work.
It accuses banks of trying to hinder shopping around by offering complex products and information. Switching is stressful, unpleasant and time-consuming and savers are ill- equipped to deal with the hassle, it says.
The report points out that less than half of us think shopping around is worthwhile and only one in ten actually switch their savings to a better account. That is too few to force the big banks to compete, it warns.
Sue Lewis, chair of the panel, which was set up to advise the Financial Conduct Authority (FCA) on consumer protection and competition, says: ‘The fiction that consumers drive competition has persisted too long. Financial services firms exploit their customers’ inertia and misplaced loyalty.’
The FCA began naming the worst-paying savings accounts every six months after a study into cash savings two years ago. This stopped last December when new rules were brought in on how banks should tell savers about rates.
In a statement, the FCA says: ‘We may need to look at what actions are needed to achieve more effective competition.’
Big banks are raking in vast sums by offering poor rates. Three-quarters of their current account customers have at least one savings product with them. Easy-access accounts, which have the worst rates, are the most popular.
By sticking with poor accounts savers are missing out on billions of pounds of interest.
A huge £665 billion is sitting in easy-access accounts with an average rate of 0.4 pc, with banks paying out £2.66 billion in interest a year. In top paying accounts of 1 pc ( see table above), this would earn £6.65 billion — nearly £4 billion more. The worst accounts are NatWest Instant Saver, HSBC Flexible Saver and HSBC Instant Access Savings Account — which is closed to new savers. All pay 0.01 pc. Santander also pays this on its Instant Saver — where your money can end up 12 months after you open an account. Lloyds, Halifax and Barclays pay little more — 0.05 pc. Lloyds Select Saver, Internet Saver, Instant Gold, Flexible Saver, Online Saver and Standard Saver all pay this rate. All are closed to new savers. Anyone who opens an easyaccess account earns 0.01 pc but will be moved into a Standard Saver at 0.05 pc after a year. Halifax pays 0.25 pc on its Everyday Saver if you open an account now. But after 12 months you are moved into its Instant Saver, closed to new customers, which pays just 0.05 pc. Barclays pays 0.05 pc on its Everyday Saver account.