Millions could lose money as banks cut rates in Isa shake-up
MILLIONS of savers could miss out on hundreds of pounds of interest as banks cut rates because they have been told to ‘simplify’ accounts.
The financial watchdog has ordered banks and building societies to streamline their product ranges as it argues that savers find it confusing when confronted with multiple versions of accounts.
Banks are set to move Isa customers on to different accounts in the coming months, but there are fears that the move will be used as an exercise to shut down higher-paying accounts.
Some savers – already hit by record low interest rates over the past few years – could miss out on annual interest of more than £200 as the banks switch customers to new accounts.
The average return on Isa accounts has dropped from 2.57 per cent to 1.16 per cent over two years, according to the Bank of England.
More than six million customers with the government-backed royal Bank of Scotland Group (RBS), which includes NatWest, will be switched to new accounts this year.
Around a quarter of these will see a drop in interest rates, and some could see returns fall from 1.64 per cent to 0.75 per cent.
RBS says that it will start to notify customers of the changes from october and they will have 60 days to accept or switch to another provider.
Barclays has started sending letters informing 2.4million Isa savers that their accounts will be closed and the money moved to new accounts from November 5.
About 1.6million are expected to suffer a rate fall. The biggest will be for users of the Freestyle Cash Isa, where returns will dive from 2.8 per cent to less than 1.5
‘Loyal customers are losing out’
per cent in replacement accounts. A customer with savings of £15,000 could see the annual interest payment drop from £420 to £193.50.
Santander and Nationwide underwent a simplification process last year. Lloyds Banking Group, which includes Halifax, said it was considering streamlining its savings range.
Sue Hannums at the online adviser savingschampion.co.uk told The Sunday Times: ‘Providers have to be commended for simplifying their deals, but they should not be taking advantage by punishing customers who are lucky enough to be receiving a decent return on deals no longer available to new customers.
‘With so many rates falling, savers can’t rest on their laurels and expect their providers to keep them on their best deals.’
Some savers will benefit from the move. The FCA said in a report last month that loyal customers were losing out because banks reserved their best rates for new customers. It also criticised bonus rates that drop sharply after a set period. A spokesman for RBS Group said: ‘We want to be a bank that customers can trust, so we are striving to make saving with us simple and fair. We’ve removed old Isa accounts already and we will remove old savings accounts to ensure that all our customers get the same rates. For the majority that means an increase in their interest rate.’
Lee Chiswell, head of savings at Barclays, said: ‘We want to simplify the way we do business. These changes will make it easier for our customers to understand their products, and easier for our staff to serve them.’