Onus on savers to check rates

Many savers could be unaware of the full extent of recent rate reductions to their accounts as banks and building societies are not obliged to write to customers about most interest changes.

Under current industry rules, accountholders could have been subject to cuts of up to 5 percentage points since the autumn without receiving any notification of the lower rates from their savings provider.

Cash returns have plummeted since late last year, following successive reductions in the base rate – now at a record low of 0.5 per cent.

But the Banking Code only requires banks and societies to write to individual savers when their returns fall “significantly” more than the Bank rate. This means suffering a cut more than a quarter of a percentage point deeper than a base rate move, or where returns drop by half a point more than the Bank rate over a year. These notification requirements do not apply where savers have balances of less than a few hundred pounds.

Dominic Lindley, policy adviser at Which?, the consumer organisation, said: “While most savers will be aware that interest rates have fallen, they may not be aware of what has happened to their own accounts.”

Nearly one in five variable-rate accounts now pays 0.1 per cent or less, while the average rate is under 1 per cent. After February’s base rate cut, one in 10 providers cut returns by more than the half point, said Uswitch.com, the comparison service.

Given the unprecedented 4.5 percentage point dive in the base rate since October, Lindley said it was reasonable to expect banks and societies to write to their savers, particularly those in poor-paying old accounts and where the provider was launching better new deals.

Adrian Lloyd, enforcement and regulatory affairs director of the Banking Code Standards Board, which oversees the notification rules, said: “Personally, I have sympathy with the view that it’s difficult for savers to keep track of all the rate changes, but banks and societies are not breaching the code.”

He said there was a general obligation for providers to keep savers informed of rates and some would have done so by writing to accountholders. Others may instead have chosen to publicise changes only in branches and newspaper advertisements.

“The message is that where a bank or society is simply following rates down, savers need to check for themselves.”

The code aimed to be “proportionate”, added Lloyd, and that a requirement to mail customers with every rate change would be expensive for providers.

But Kevin Mountford, head of savings at Moneysupermarket.com, the comparison service, pointed out that, with banks and societies wanting to hang on to deposits, “they are not going to do more than they have to [to inform savers of cuts].” However, thanks to the internet, he added that it was easy for savers to confirm and compare rates.

Experts also warned that the code did not require providers to inform savers when short-term bonuses on accounts came to an end, even though this triggers a big reduction in returns.

David Black, consultant at Defaqto, the research firm, noted that many savings accounts had dropped by less than the base rate since the autumn because they had already been paying under 4 per cent.

From November, the Financial Services Authority said that providers will be required to write or e-mail accountholders with details of any rate changes, under the European Union’s Payment Services Directive.