10th May 2014
Consumer group Which? has launched a campaign calling for banks to release savers from pitiful savings accounts.
As part of its ‘Scrap the savings trap’ campaign it wants banks and other savings providers to close poor paying ‘zombie’ accounts and move savers’ money into one default easy-access or ISA account at the end of fixed terms when initially attractive rates fall.
Eight out of 10 easy access savings accounts and cash ISAs on the market are ‘zombie’ accounts closed to new business and four in 10 are paying 0.5% or less.
It has also called for simplification of the ISA switching process to make it quicker and stop ISA providers limiting transfers into new ISAs. Often ISAs paying a decent rate will only accept new money and not transfers in from existing ISAs.
The campaign aims to change the way information about savings rates is communicated. Which? wants banks and building societies to display interest rates prominently and consistently on annual summaries and online pages. It said they should also improve notifications about the end of bonus rates or fixed terms and make sure staff are promoting better options rather than letting customers’ money languish in poorly-paying accounts.
Savers have been hit hard over recent years suffering rock-bottom cash ISA and fixed bond rates. This has been due to a combination base rate being kept at 0.5% for five years and the Funding for Lending Scheme (FLS). In the summer of 2012 the government made £80 billion of cheap money available to banks and building societies to lend out as mortgages under FLS to kick-start the mortgage market.
The scheme had the desired effect in the property market but it also meant lenders no longer needed to rely on savers’ deposits to fund loans and savings rate sunk.
So it is no surprise that 75% of people, when asked by Which?, do not think banks do enough to help savers get a good deal and over a third, 35%, of savers have not switched their main savings account because they do not think it would make enough of a difference.
Which? estimates savers are missing out on £4.3 billion a year by leaving savings in poor value accounts.
‘With many savers never switching because they don’t think it will make a difference, savings providers should do more to help their customers get the best deal,’ said Which? chief executive Richard Lloyd. ‘They need to be clear about interest rates, let people know when the bonus rates come to an end and make it easier for people to switch ISAs.
‘Banks and building societies must scrap the savings trap and free savers from poor value accounts.’