Savings accounts - what's in a name?

Do you really know what you earn on your savings accounts ? If so, is it the best interest rate return you can achieve for your money or have you been sidelined, left behind to languish on a lower rate while a super duper Mark 2 version of the account offers a better deal to newer savers? It seems that savers are being mislead (intentionally?) by certain banks in their zeal to attract cash in these credit crunching times.

Savers new to the game have never had it so good, being wooed by interest rates well above the present Bank of England base rate. Longstanding, loyal savers could be getting a financial kick in the teeth (wallet?) though; stuck in an older version of a savings account or cash ISA which is now enticing new savers with rewards of, say, 6.25% they may find they are earning up to half a percentage point less on their money.

Surely not? They're in the same account. Err, not quite; it may still be called Platinum Returns Direct ISA but the bank has now moved onto Mark III or Issue 4 (a ranking often hidden away in the advertising small print) which pays a better return.

First time savers will get this new rate, assuming they are prepare to comply with the terms and conditions of the account. Veteran savers with Platinum Returns could be left in the cold. Under the present Banking Code , the self-regulatory rules instituted by banks and building societies, there is no provision to move old account interest rates in line with those paid on newer accounts (or versions thereof). The loyal saver is stuffed in this respect. He or she could ask to be upgraded, to benefit from the new version, but there could be an administration charge.

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Know what you're earning

That's if they notice the interest rate anomaly in the first place, however. Earlier this year Investec's six-monthly 'savings monitor' survey revealed that a third of savers (approx 11.5 million UK adults) are unaware of the rate of interest they are receiving on their bank and building society accounts. Less than one in five (18%) of regular savers knows the exact rate on all their savings accounts.

So millions could be missing out on more competitive interest rates than they currently receive because they have not switched to a higher rate savings account. The survey indicates that savers with large balances (£25,000 and above) are potentially losing out on £100s in interest each year by leaving their money to languish in lower rate accounts.

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Last year third quarter analysis revealed the average rate of interest to be 3.43% lower than the best possible returns for savings accounts with balances of £1; this potentially left those with £25,000 deposited around £857 out of pocket over the course of the year! Many are not saving that amount. In fact there's been a dramatic fall in the level of savings; not surprising given the significant increases in household and living expenses since the beginning of the year.

According to Sainsbury's Finance, 37% of people now claim to be unable to save anything at all, whilst 3.74 million (8% of the adult population) are saving over 20% less and only 1% of people saving over 20% more than they were a year ago. Banks, though, are desperate for cash deposits, but at minimal cost and expense. They consequently offer enticing rates while cunningly restricting their overall interest outgoings by offering revamped, rebranded accounts to new savers.

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Stewart Farr
30 April 2008 © Moneyextra.com

SAVINGS - DEPOSIT ACCOUNTS - CASH ISAS - CHILD TRUST FUNDS - SAVINGS FOR CHILDREN

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