SAVINGS SHAKE-UP
SAVERS suffer a rotten deal at the hands of banks and building societies, with meagre interest rates, lack of clear information to help them compare rival deals and frustrating hurdles if they choose to switch. Now the City’s top watchdog says enough is enough.
Here, The Mail on Sunday asks whether customers will profit from a proposed shake-up of the savings market.
What is wrong with the savings market?
THE UK’s £700 billion savings account market offers a poor deal for consumers, says City watchdog the Financial Conduct Authority. Research published last week found that competition is not working and savers are being robbed of billions of pounds of interest.
It found one in three savers with easy access accounts, the most popular form of deposit account, who leave their cash to languish for five years or more, are punished with interest of 0.5 per cent or less a year – a lower rate than paid to newer customers.
Why don’t customers switch?
SAVERS believe rates offered elsewhere are just as bad. They have a point. Providers have applied 1,184 rate cuts in the past year alone, even though the Bank of England base rate has not moved from 0.5 per cent since 2008.
This deluge of rate cuts has been caused by the Government’s Funding for Lending scheme, launched in 2012. This gave providers access to cheap money, meaning they depended less on savers to bolster their coffers. Billions of pounds is sitting with providers waiting to be lent under the scheme, so there will be no reprieve for savers in the short term.
Another hurdle is that more than half of savers do not know the rate paid on their savings and many banks fail to spell them out clearly on statements or even online.
Does this mean transferring is futile?
NO. Even in the current environment switching makes financial sense. Rate scrutineer SavingsChampion says £5,000 held in the worst instant access accounts paying 0.05 per cent (culprits include HSBC Flexible Saver and Saffron Building Society CashBuild Account) earn just £2.50 a year before tax.
Transfer the balance to the best easy access account paying 1.4 per cent (providers include Post Office, Coventry and Earl Shilton Building Society) and you can earn £70 a year before tax.
What changes are called for?
THE hope is that savers will have access to clearer information from their providers to help them compare deals – and be able to switch more easily.
Providers will have to publish rates more prominently – including the lowest rate a customer receives – and possibly compare these to the best on the market. They should warn of impending rate cuts. There is also a plan to let savers in tax-friendly cash Isas switch in seven rather than the current 15 days.
Stephen Womack, a financial adviser with David Williams IFA in Northampton, says such steps will be welcome. He says: ‘When providers tip off savers saying the interest rate is being cut on an account, as some do, it makes a difference.
‘It provides a trigger to look for a better deal. If that communication can be enhanced and simplified, that would be a big help.’
How are providers responding?
THE watchdog says some banks and building societies are setting a good example already by simplifying their account ranges and communicating more frequently with customers – but the rest should follow suit.
Lloyds Banking Group, one of the biggest savings account providers, says it already publishes rates clearly on statements, online and via mobile texts and apps. It notifies customers two months in advance when an introductory bonus rate – known as a teaser rate – is due to expire.
It is also trimming its range of accounts to just three across each of its brands – Lloyds Bank, Halifax and Bank of Scotland. And it says cash Isa customers can already switch in five days.
Nationwide Building Society offers SavingsWatch – a service that tips off customers by text, phone or email on rate changes or account launches. But customers must be prepared to receive marketing communications – even if they had previously opted out.
The building society issues annual statements to customers that include all savings account rates in one place – but falls short of the FCA’s wish to compare them to rival deals.
Challenger bank Aldermore writes to customers 30 days before a deal ends, prints rates prominently and points savers to independent website Moneyfacts to show where their deal sits.
Do the proposals go far enough?
CRITICS say the FCA has missed a trick by failing to outlaw teaser rates, where accounts pay a higher rate initially but fall after an introductory period ends. But supporters say such rates can stimulate competition and work for the canny consumer.
Simon Healy, Aldermore Bank managing director, says: ‘We don’t want them to be banned even though we don’t use them. They work for some but we differentiate ourselves by offering consistent value and returns on our accounts with no withdrawal restrictions.’
Womack believes there are more switching barriers to overcome. He says: ‘Among the biggest problems are the onerous identity checks that the watchdog itself insists on as part of its antimoney laundering controls.
‘Clients can often be reluctant to dig out passports and utility bills and then trek down to a branch to open a new account to gain just a few pounds of extra interest. It would be great if ID checks already done and information stored when an account was originally opened could be shared with a new provider.’
When will any changes happen?
The FCA is seeking views on its proposals by the middle of next month and will compile an initial report in the summer.
Should I wait until the proposals are implemented?
NO. Better deals are out there so start working your money harder now. Compare deals at websites such as MoneySuperMarket, Moneyfacts or SavingsChampion.
Savvy savers can also secure some of the best interest rates on special current accounts, such as Santander’s 123 (up to 3 per cent) and Lloyds Bank’s Club Lloyds (up to 4 per cent). If you need prompting, consider signing up to a service such as SavingsChampion’s Rate Tracker – it compares your account with the latest best-buys and pings you an email when a better rate is available.
For those with £100,000 or more but unwilling to do the groundwork themselves, the company offers a Concierge Service. For an initial fee of 0.1 per cent and 0.05 per cent quarterly, a dedicated team researches, monitors and manages all your savings on your behalf.