Is it time to dump your savings account?

The way banks and building societies have responded to last month's interest rate rise reaffirms one thing - do not be loyal to your bank, because it will not be loyal to you.

If interest rates rise it is not unreasonable to expect the rate on your savings to go up as well. Yet, many of the banks and building societies think differently. We have seen some big names - ING Direct, Halifax and Alliance & Leicester - not pass on any increase to some of their savers and there are a number of smaller providers who have also let customers down. But guess what, every single one of them has increased their variable mortgage rate. How can that be fair?

The banks claim that the sums are complicated and that it is not as simple as passing on the same rate increase to savers and borrowers. I'm sure the sums are complicated, particularly for the institutions that have numerous savings accounts, but I don't see how they can justify not passing on any increase whatsoever to some savers.

Savers need to be really vigilent becuase, not only are banks and building societies failing to pass rate rises on in full, their savings rate decisions are often anything but consistent. Some rates may go up  by the full amount, others may not rise at all, and some may only go up by 0.05, 0.15 or 0.19 points - to the outsider, there is no logic at all.

The reason why the banks do this, is because they know that most savers will stay put and not bother moving their account. Many will have no idea what rate they are even earning, let alone how their provider has responded to the latest rate rise. We therefore need to dispel the myth that consumers are apathetic and don't care, and vote with our feet by moving our money elesewhere.

If you are fed up with the way your bank or building society treats you, please let us know.

Comments

[Thomas Sweeney]

First Direct are the worst offenders as theit top rate is only 5% against ING web saver @ 5.65%. At least they are trying to support their loyal customers.Nobody seems to mention First Direce in their articles.

[J B Mordue]

Re Halifax Web Saver: on 2 Feb, I rang Halifax to query lack of rise in interest rate on non-card Web Saver. The bank's employee informed me that the rate had, in fact, been raised - to 5.52%, provided that account had been held for six months. I found this hard to swallow and asked her to double-check; she did, and confirmed this to be the case. So, not only does the rate not go up, but the bank's own employees don't even know the facts!!

[Chiang]

It's one thing to say dump your savings account, but where do we move on to? If, as what you said, most banks do not pass the rate rise benefit to the consumers, then it's only about finding the lesser of all evils. Perhaps we shouldn't be focusing on savings account and consider other investment options instead.

[Don]

Most banks are slow to increase thier savings rates following the BOE announcement, this results in the further annoyance that one must wait a month before one realises that your bank is not going to pass on the increase.

I'm still awaiting some move from the Alliance & Leicester where ISA rates have not increased since September 2006.

Once the year's £3,000 deposit has been made into the ISA it can prove difficult to switch banks mid-year as many banks expect an account with them to be opened with a cash deposit.

Switching ISA provider also seems to involve one's funds moving into limbo for a few days, earning no interest - with ISA accounts holding about £40,000 this becomes a more than trivial amount for the saver & must be a jolly good earner for the banks.

[David Dry]

ING Direct's new rate policy is so blatant that they will and ought to lose market share fast. I complained to them by phone after their first failure to move rates up, got a weak response, and moved immediately to ICESave. I didn't wait till the recent base rate hike. Moving is easy, though ICESave's admin was a little slow at setup.

[David Shields]

I quite aggree with your artical of 4th feb.It is very under hand of ING and banks like them not to increase their rates in line with the bank of england.I will certainly be transfering my savings elsewhere.

[Len Lawson]

There seems to be no end to the duplicity exhibited by Alliance & Leicester when it comes to savings accounts. It has not raised the interest rate on its Phonesave account despite two rises in base rate, leaving the rate at 3.6%. A & L offer an Online Saver (Issue 2) paying 4.65% but it restricts the take-up of this better- paying account to one account per person. Since I have two Phonesave accounts (one for personal use, and one as a joint account with my wife) I am unable to open two Online Saver accounts. Thus I am stuck with an uncompetitive Phonesave account. But not for much longer - I will now seek a better-paying instant access account elsewhere and A & L will lose my funds. I recommend all others to do the same.

[Dave (Not Smiling)]

Smile Internet Bank USED to be a good place to keep my money. No longer. Despite two interest rate rises, it has not increased its rates for savers. Its Savings Account is a niggardly 3.41% (4.25% if you have a Smile current a\c). Their Isa is still at a pathetic 4.00 % (4.75% if you have a current a\c). Ethical bank? I don't think so. I shall be moving my accounts elsewhere and I urge other account holders to do the same.

[A.R.Mogg]

Disgusted with ING .Closed my account in favour of ICESAVE who are taking forever to open an account.

[Nick Rich]

Well done to the Sunday Times for its campaign on this. It is becoming more and more time consuming keeping track of these rogue banks. I recently closed my ING account when they failed to raise rates last year, claiming savers wanted a "consistent rate"! To repeat this is outrageous. Some sort of regulation to protect customers is clearly needed.

[Shedpanda]

A couple of things your readers might like to know about the ING Websaver:
(1) It can only be in one name
(2) The "move my money" facility requires that an ING Direct account (at a lower interest rate) remain open - albeit with a deposit as low as £1.00 - as the Websaver will only connect with an ING Direct account, and not with savings / current accounts held with another provider.
Neither of these restrictions were mentioned in your article.
Our current account is in joint names and it seems curious to me that Websaver - at least according to the lady I spoke with - does not afford this facility.

[Robert Mackman]

Moving my Smile ISA to Bradford and Bingley has been a catalogue of errors and delay. First they tried to make the transfer from my B & B ISA instead of to B & B. Second they sent the funds to Nationwide. Then to the wrong B & B account. Then the cheque was cancelled. Its February and I'm still waiting. Paying a mere 4% for ISA which cannot be easliy moved is shameful.

[Norm]

I have a flexible mortgage with RBS and when the rates are cut they lower them by 0.10 or 0.15 but when the rates rise they raise the rate by 0.30. By my calculation my rate should be 1.5% less than it is if they had followed the base rate rises.It took 6 months to process the mortgage and no apology. I cancelled all other bank accounts with them because of their paltry interest rates.

[C N Salmon]

In the 'Accounts to Dump' box which accomapnied your 'Call for probe into savings ploy' article in the Money Section on 4 February, you indicated Smile had increased the rate on their cash ISA by 0.25% in January. This is not the case. When I spoke to them about this they said: 'We have not yet been advised of any interest rate changes. As a leading internet bank we do try to remain competitive in today's market. However, we don't just pride ourselves on our interest rates. Our many benefits include our award winning customer service and our distinctive ethical stance.'

[BritishAirman]

The "spread" in terms of interest will always be greater on loans that banks offer than on savings held by their customers. This is, after all, how banks are 'meant' to make their businesses profitable. In addition, though, it shouldn't go unsaid that the banks now make colossal amounts of wealth from the charges they impose on customer’s transactions. Banks and financial institutions are constantly looking for ways in how money can be made - either through charging certain people through the use of their ATMs - and never seem satisfied with the levels of profits they report.

Banks are now far more selective than they ever have been. This is particularly true in selecting people for loans. Loyalty is a word of old that no-longer stands up in the cut-throat world of banking and commerce. People are selected and vetted for loans who pose minimal risk to the bank. Although the APR% (Annual Percentage Rate) on loans can be varied by taking into account risk elements, generally high street banks will operate on the cautious side because it avoids the necessity by increasing bad debt provision. With such a safe policy, it does beg the question of why banks are not rewarding their savers more generously. Is the purpose of banking not to encourage savers? Many of the interest rates that banks display for the modest savers either act as a disincentive or, particularly in recent years, the conditions attached for withdrawals makes access to the savings a difficult task.

Customer loyalty is certainly a thing of the past that is gradually ebbing into the minds of bank account holders. With banking now far more digitalised and automated, customers are now mere statistics with the ever increasing use of technology. The personalised touch, for instance, has, in many cases, been lost to the cost-cutting mechanisms of the digital era. Here again is an area where banks are capitalising at the expense of its customers with no or little reward for its savers, the very backbone of whom the banks rely for their survival.

If anyone is concerned that their savings are being eroded because the banks do not even cover the prevailing rate of inflation on savings, I would seriously urge that you consider switching some of your cash savings into a mini Cash ISA. Interest rates on ISA's are generally very favourable and will change when the base-rate is amended by the Bank of England. Interest rates on ISA's can vary, depending on what type of facility is used, but currently cash paid into a passbook could easily be attracting a rate of 5.25%. Interest rates are also paid without income tax deducted so long as payments made into a mini Cash ISA do not exceed £3000 this current financial year. These facilities are being provided throughout local communities such as a solicitor's office who may be acting as an agent for a particular bank or building society. The inconvenience factor, that was once associated with moving money around, no longer holds true. Take the initiative; you are the one who is in control of all of your financial dealings including how much money you could typically make from a sum of money that, in many cases, only needs to be deposited somewhere else. Don't expect the banks to tell you about this.

[C Davis]

Sorry to be picky - but since ICEsave don't raise their savings rate at the same time as a rise in bank rate aren't they in breach of their guarrantee to remain 0.25% above.

[Dave (Still Not Smiling)]

"Ethical" Smile have put the rate up a measly quarter per cent this week. I have been with them since they started but am now sickened by their smarmy literature and passing themselves off as the good guys when in fact they are as bad as the rest.

[Adrian Cotton]

The leading money article today said "A clear majority, 56%, said they had experienced bigger rises in mortgage rates than in the interest paid on their savings accounts." Why have people who have a mortgage got a savings account? When will they learn the the their "savings" will earn the most by paying off their mortgage? And it's tax free. Why don't they have a current account mortgage or some form of offset arrangement?

[Ian Sommerschield]

Yes, I also quickly bailed out of ING last week. The best approach is to go for consistency. I have chosen Nationwide's eSavings account (although you also need a Flexaccount to act as a 'feeder' into eSavings)

[John Carton-Ashton]

On Money page of ST last Sunday you mention that A&L Premier Direct account offers 6.1%. There have been even bigger offers recently, but you didn't mention that these are not open to existing current account holders. My complaints to the bank have received the comment that it feels quite justified in this practice for getting new customers & the practice is common in the industry. I was referred to the ombudsman, who replied of course that this matter was outside of his/her jurisdiction.

[richard morris]

Alliance & Leicester Direct ISA's (Issue 1 & 2) no increases since September '06 - time to move on!

[Wendy Hall]

Following Claire Francis' article on 4 February, my husband and I have been taking another look at our savings accounts.

We have an on-line saver account with HSBC which, according to the article, should be paying us 5.75%. On investigation, our interest rate is 5.25%.

When I challenged HSBC, they told me the higher rate is only for new savers as from 5 February.

If loyalty counts for so little, then I am going to move my money elsewhere!

I am currently awaiting a comment back from HSBC.

[Phil Hill]

A strange thing has happened with ING recently, you are right they have not put up there savings rate for existing customers despite the last two rate rises, however they have introduced a web savers account that existing account holders can apply for. This gives an astonishingly good rate of 5.65% and can be opened in seconds. It seems to be exactly the same as the regular savers account, except with a higher interest rate. So why not do what I did and open an additional account and transfer across to it.

[Compare and Save]

Please find a guide to savings accounts. It has 11 sections from 'what is a savings account?' to a break-down of the various product types available to UK money savers.