Stop locking savers’ cash into low rates, banks told

TODAY sees the launch of a campaign to demand that banks and building societies revolutionise the way savers transfer cash between providers. It follows the ‘switch guarantee’ implemented to help customers move current accounts. SALLY HAMILTON investigates why hurdles stop millions from making the switch to higher rates.

FIVE years of low interest rates have robbed savers of vital income. Those who have left money languishing in the poorest paying accounts are losing most – an estimated annual total of £5billion.

More than half of all easy access savings accounts pay 0.5 per cent or less, but millions could boost their returns if they moved to better paying deals. The top rate available from the best of these accounts is three times higher at 1.5 per cent.

Those with cash in obsolete accounts no longer open to new deposits need to take even more urgent action. A saver with a Halifax Liquid Gold account, for example, is paid a derisory 0.05 per cent.

Since last June alone, there have been 1,700 savings rate cuts across the market, even though the bank base rate has not budged.

Calculations published by the financial mutual Wesleyan Assurance suggest that a saver who put £10,000 in an account paying 0.5 per cent in March 2009 will have earned just £252 gross interest in five years. This is £1,061 less than in an account paying 2.5 per cent.

The torturous process of closing down one account and opening another is paralysing savers, according to rate checking website SavingsChampion. In response, its Switch My Savings campaign is urging banks and building societies to put a simpler system in place.

Director Anna Bowes says: ‘All providers have their own processes, which leads to confusion. It is such a complex process that savers miss out on the best deals.’

SavingsChampion has written to Chancellor George Osborne to urge him to come to the aid of savers in his forthcoming Budget.

Bowes says: ‘Consumers can easily switch cash Isas, energy, credit cards and broadband, so why not savings too?’

The campaign centres on letting savers simply inform a new provider of their existing account details and leave it to do the rest.

She says: ‘Switching a current account takes just seven working days. We want a guarantee like this with savings.’

Under current arrangements savers who want to transfer when they spot a good deal must typically cash in an existing account and either have the money credited to a linked bank account or receive it as a cheque or cash. A cheque for the sum must then either be posted to the new provider or sent electronically. The clunky process can sometimes take weeks.

Account opening arrangements vary from bank to bank with delays likely as ID and proof of address are necessary to finalise the deal.

The current account switching process cost the banking industry £750million to implement, suggest- ing it is unlikely that providers will embark with enthusiasm on streamlining savings transfers.

Some players support the thrust of the campaign. Simon Healy, managing director of savings at the fledgling bank Aldermore, says: ‘Given the success of the current account switch service as well as the move to allow customers to transfer Isas online, it begs the question why customers shouldn’t be able to transfer their savings account easily.

‘If the regulator – the Financial Conduct Authority – is keen to make the savings market work for ordi- nary savers, who are already suffering, then why not allow them to up sticks hassle free if they’re not happy with their savings?’

Others are less enthusiastic. The British Bankers’ Association argues that competition is healthy and the existing process is easy.

A spokesman says: ‘A switching system is already in place allowing customers to electronically transfer their cash Isas to another provider. Moving a savings account is usually a straightforward process and switching levels have historically been higher with these accounts than for current accounts, where direct debits, standing orders and other payments can make changing to a new provider more challenging. We recommend that if you are unhappy with your savings account you take a look at what other providers are offering.’

Darren Bailey, head of savings pricing at Nationwide Building Society, defends the current situation. He says: ‘Opening an account couldn’t be simpler and provided new customers bring the correct identification then they can quickly start getting a better savings deal. For our existing customers the process is even quicker as we have their ID confirmed on the system.’

The 2011 Vickers report recommending sweeping reforms to banking suggested nearly six per cent of savers switch accounts each year compared with just under 4 per cent of current account holders. Bowes says yet more needs to be done.

Sign the petition at savingschampion.co.uk