Millions of instant access savers will be entitled to receive two months’ written notice of cuts to interest rates on their accounts from next weekend.
Under new European rules taking effect on November 1, banks and building societies are required to give customers advance warning of reductions.
Savings providers will also have to inform accountholders when returns are set to drop as a bonus period comes to an end.
Most top-paying variable rate accounts now carry introductory bonuses, with many then reverting to an uncompetitive rate.
The new notification requirements follow months of providers “trimming” rates on accounts, often without informing customers, even though the base rate has remained unchanged at 0.5 per cent.
Halifax and Leeds Building Society, for example, have recently cut the rates on a range of accounts by up to a quarter of a percentage point.
“The changes are aimed at ensuring customers know what is happening to their accounts,” said a spokeswoman for the Financial Services Authority (FSA), which will oversee the rules.
“The rationale is they are told ahead of time so they can move if they want to.”
The requirements come into force in two stages.
First, from November, banks and societies must give customers two months’ notice before any reduction in rates on most instant access and current accounts. This is in line with the European Union’s Payment Service Directive (PSD).
Providers will have to send out letters, e-mails or texts detailing a forthcoming rate cut – with communication methods depending on what customers signed up to when they opened accounts.
Then, from May 2010, there will be a new notification regime for notice and other instant access accounts, including individual savings accounts (Isas).
These Banking Conduct of Business (BCOB) rules are still being finalised but are also expected to give savers advance notice of rate cuts.
Experts said that requiring providers to give advance notice of rate reductions would be a major improvement on existing notification rules.
Some providers already write to savers when their rates are being cut. But under the industry’s current Banking Code, there is no requirement to pre-warn customers.
Savers only have to be informed of reductions that differ “significantly” from base rate moves.
Those rules meant, for example, that when the base rate fell from 5 per cent last autumn to 0.5 per cent, savers could have suffered a total of 5 percentage points of interest cuts without notification.
Vera Cottrell, policy adviser at Which?, the consumer group, said: “Currently, savers need to actively monitor their accounts for reductions, so to be given this information is a big advantage.”
However, experts expressed some concerns about the new regulations.
Providers will not be required to inform savers if rates are kept on hold following a base rate increase, or if only part of the increase is passed on.
With interest rates at a record low and providers keen to improve their margins, many are expected to restrict increases for savers when the base rate starts rising again.
The changes could also lead to lower rates generally, suggested Cottrell.
Because providers will not be able to pass on a future base rate cut until they have given the required notice, they might not offer such competitive returns initially.
Adrian Coles, director-general of the Building Societies Association, said the new notifications added to providers’ costs and could be “an incentive for more stable rates”.
