Big banks locking savers into deals paying below 1pc

MAJOR banks are locking savers into accounts that pay less than 1 pc if they fail to move their money when their old deal ends.

When a fixed-rate bond expires, many banks and building societies automatically move your cash into the newest version of the same account — unless you tell them to move it somewhere else. But these accounts pay as little as 0.7 pc for one year or 0.9 pc for two years.

The roll- over tactic, which has been slammed by watchdogs, is costing savers as rates have plummeted.

Deals on oneyear fixed accounts have fallen 38 pc from 1.51 pc to just 0.94 pc in the past year, according to Bank of England figures. Two- year rates are down 29 pc at 1.15 pc compared with 1.61 pc 24 months ago.

Customers who thought they had signed up for a decent deal are finding their money is being ploughed into an account paying a more meagre return.

And once your money has moved in, you have between just 14 and 30 days to get it out before it is stuck there for the full term. Otherwise you’re charged a hefty penalty to withdraw it.

The details of what happens at the end of your fixed-rate term are often hidden in small print. Big providers that auto-renew your deal include Barclays, NatWest, Royal Bank of Scotland and National Savings & Investments (NS&I). NatWest and RBS customers with a one or two-year fix due to expire will end up in an account paying a miserly 0.7 pc fixed for one year or 0.9 pc for two years. You have 30 days to get out without paying a penalty — after that you are charged a fee equivalent to 90 days’ interest. You can more than double your money in the top deal from Charter Savings Bank. Customers with NS&I may end up with 0.9 pc for two years in its fixed-rate certificates. If you reinvest in the five-year deal, you will earn just 1.6 pc a year. These certificates were withdrawn from sale in 2010, but if you already hold them, you can roll them over for another term. These were once the bedrock of any savings plan because you were automatically exempt from paying any tax on the interest. But since the cash Isa allowance has shot up — and the arrival of the personal savings allowance — they could have lost their appeal to some savers.

Justin Modray, from financial website Candid Money, says: ‘Savers need to reassess whether NS&I Fixed-Rate Certificates are still a good deal in the light of the personal savings allowance and a higher cash Isa allowance.

‘They could get a better deal without paying tax elsewhere.’

Barclays also rolls you over into a new bond. If you do not want it, you must tell the bank before your current bond matures.

Once in the bond you have just 14 days to get out. Barclays currently pays 1 pc for one year.

Among the largest building societies, Skipton, West Bromwich and Coventry also put your money into a new bond unless you tell them not to. Skipton and West Bromwich pay 1.15 pc for one year and 1.25 pc for two years. Coventry offers 1.5 pc for two years.

This practice of rolling your money into another fixed deal is under review by city watchdog the Financial Conduct Authority and could be banned.

It is part of its investigation into the cash savings market where, it says, competition does not work well for many consumers.

An announcement was expected early this year, but has been pushed back to the late summer.