Banks locking savers in deals that pay 0.7pc
Sylvia Morris
FIXED-RATE bond savers are in danger of being locked into deals paying just 0.7pc when their current bonds mature.
City regulator the Financial Conduct Authority (FCA) has backed away from stopping banks and building societies rolling your money into new fixedrate bonds when your old one comes to the end of its term.
Barclays, NatWest, Skipton BS and National Savings & Investments (NS&I) still automatically roll you into a new bond.
To have the cash moved somewhere else, you have to let the firms know before the end of the term on your existing deal. In some cases, you have only a 14-day window in which to give instructions.
If you fail to cancel the rollover in time, you may have to wait five years to access your money again.
Other big banks will simply put your money into an easy-access account at the end of the term.
Faced with tumbling easyaccess rates, savers have rekindled their interest in fixedrate bonds. Last month, some £800 million flowed in — the first increase for more than two years.
And inflows could increase as large numbers of fixed deals mature this autumn.
But if you’re simply rolled over to a new deal, rather than shopping around for the best one, you’re likely to get a poor rate. If you’re moved into NatWest’s current fixed-rate deal, you’ll see just 0.7 pc in the one-year deal or 0.8 pc for two years. Barclays pays 0.8 pc fixed for a year. You can do better by moving your money to a new provider. Charter Savings Bank pays 1.38 pc for one year on its online account, while in the High Street Principality BS pays 1.1 pc and Leeds BS 1.05 pc. Over two years, the best rate is 1.5 pc, offered by Hampshire Trust, Julian Hodge Bank, Ikano and RCI Bank. In the High Street, you can get 1.15 pc from Leeds. The FCA looked to ban the sneaky practice of auto-renewal when it launched its investigation nearly two years ago. But it has since dropped its plan. Instead, new rules from December will demand banks and building societies write to you 14 days before your bond matures, explaining your options. You can cash in your bond, open an easy-access account or have your money rolled over into a new bond. But if you don’t reply and your money is in an auto-renew deal, you will end up in another bond and you’ll need to act quickly if you want out.
Barclays gives you just 14 days to get out of the new bond and demands you write to its servicing centre in Leicester.
If you don’t act in time, you are stuck in the bond for the full term. The bank won’t allow you to take out your money at all.
With NatWest you have 30 days to close the bond without paying a penalty. Miss this window and you can only close the bond by writing to the bank and waiting 35 days for your money. You also pay an early closure charge equal to three months’ interest.
At Skipton BS, the current rates are 1pc for one year, 1.1pc for two or 1.3pc for three years. You can’t touch your money until the end of the new term.
NS&I rolls over your Guaranteed Growth Bond. They are on offer only to those who already have them — including those who put in their money when their one-year Pensioner Bonds matured.
They pay 1.2 pc for one year, 1.3 pc for two years and 1.5 pc for three years. In the new bond, you pay a penalty equal to 90 days’ interest to get your money out.
The FCA says it found the majority of providers that practice auto-renewal do not offer less interest to existing customers than new ones.