Savers were hit with a double whammy of bad news last week. On Tuesday it was revealed that inflation had climbed to 0.5 per cent. Then on Thursday, to little surprise, the Bank of England kept interest rates on hold yet again. They’ve remained frozen at record low levels for more than seven years now.
With the average deposit account paying just 0.4 per cent last year according to The Money Charity, it means if you’re not a savvy saver who constantly chases the best deals, you’re almost certainly losing money. That’s because inflation is eroding your nest egg more than the interest is helping it to grow.
Is that fair? Some suggest that those who end up on rubbish interest rates are doing it out of choice: they choose not to switch accounts to get decent deals.
I disagree. I believe that millions of savers simply want a decent home for their cash. That means easy access to it in an emergency but in the meantime that it quietly grows through regular interest payments added. That’s what I want from a savings account. I know that I’m not going to get market-leading interest. But I expect a fair return. And I believe everyone should get that. But they don’t. In fact most savers are treated terribly shabbily by their bank or building society.
Here’s why: whenever anyone has had money to save they looked for a decent interest rate. Their own bank almost certainly had an account – called Premium, Gold, Magnificent or other meaningless superlatives – which looked fine.
But millions who stashed their money away would get a surprise if they check their accounts now. They’ll discover that the interest rate has been reduced to virtually nothing. The reason? Because banks can get away with it and have been doing so for years.
Worst are accounts which offer teaser rates: short-term bonuses which push the accounts into the best buy tables. The problem is that once the bonus term is finished, the rates are reduced to an embarrassingly poor level. Research from the Fair Banking Foundation last year found that almost four million people had become victims of the banks’ cheap marketing tactics in the previous five years. They failed to move their cash once the bonus deal finished leaving them getting rates as low as 0.1 per cent.
The Financial Conduct Authority began naming and shaming lenders with rubbish-paying accounts in the autumn. The FCA’s table of shame revealed that staggeringly poor interest of 0.01 per cent was paid on accounts from Danske Bank, Progressive Building Society, Skipton Building Society and Ulster Bank. Many mainstream names had equally poor accounts paying just 0.1 per cent — including Bank of Scotland, Barclays, Halifax, Lloyds, Post Office and Santander.
The City watchdog is trying to force the banks to clean up their savings tricks. From December this year it will force them to tell savers when they slash interest rates. They will also have to make interest rate information clearer when customers open accounts and report it alongside account balance information. The hope is that knowing that the interest rate is paltry will encourage savers to switch to better deals.
But I reckon the regulator should get tougher. Meaningless low rates should be outlawed. Banks and building societies should be forced to ensure all their savings accounts offer a fair competitive rate.
Millions of people want a safe home for their savings and shouldn’t have to constantly check their accounts to ensure they’re not being ripped off with rotten rates.
Simon Read is a freelance writer and broadcaster and former Personal Finance Editor of The Independent
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