High street banks offering zero interest on savings accounts, FCA Sunlight report reveals

Interest rates for some customers could get even worse this summer as the Bank of England plans to cut the base rate from a record low of 0.5%

Hazel Sheffield
Tuesday 19 July 2016 17:17 BST
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The worst affected accounts were closed savings accounts that banks paid next to no interest on
The worst affected accounts were closed savings accounts that banks paid next to no interest on

High street banks have been named and shamed for giving some customers zero interest on their savings if they fail to move their money into newer accounts.

An investigation by the Financial Conduct Authority showed that Post Office cash savings customers are getting zero per cent interest on their cash, while Danske Bank and Ulster Bank after offering rates of 0.01 per cent.

The FCA has named and shamed 32 banks that offer easy-access savings accounts or cash Isas as part of its “Sunlight Remedy”, a yearly look at the worst value accounts intended to help customers get a better deal.

It found that HSBC and First Trust Bank were paying interest of 0.05 per cent to some customers.

Christopher Woolard, the FCA’s director of strategy and competition, said: “In a well-functioning market, providers should be competing to offer the best possible deal to consumers. Our Sunlight Remedy data shows that some consumers could be better off by opening a different account.”

The Post Office said the FCA looked at its Instant Saver easy-access account that only pays out interest if account holders keep the balance above the £500 required to open the account.

Account holders are made aware that if they dip below £500 then they won't earn any interest on those savings.

A Post Office spokesperson said: “All our savings accounts are offered with an interest rate of at least 0.1 per cent.

“The FCA report gives the impression that we have had a 0.0 per cent rate, but it is important to emphasise that this is not the case. This relates to some of our products that require a minimum £500 deposit and where we make clear to customers that they will not be eligible for interest if the amount in the account falls below £500.”

The worst affected accounts were closed savings accounts that banks paid next to no interest on.

“Longstanding customers in closed accounts are getting a raw deal with many providers taking advantage,” said Danny Cox, a financial planner at Hargreaves Lansdown. “Providers seem perfectly happy to let savings held in closed accounts wither on the vine. This shows the importance of shopping around and switching accounts to make the most of your money.”

Interest rates for some customers could get even worse this summer as the Bank of England plans to cut the base rate from a record low of 0.5 per cent to 0.25 per cent.

The Monetary Policy Committee voted 8-1 to keep rates unchanged at 0.5 per cent, where they have been for seven years, but there were strong hits than the base rate would be cut when the committee meets on 4 August.

"In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the Committee expect monetary policy to be loosened in August,” the committee's July report said.

The difference between the base rate and the interest rate offered to customers will often feed directly into the bank's revenue, constituting a kind of invisible charge for holding a customer's money.

Banks will often charge greater overdraft fees than the interest charged at the Bank of England base rate. This feeds into bank revenue too.

There are few hard statistics to calculate how much this revenue is worth, but the Office for Fair Trading estimated that personal current accounts generated just under £9 billion in total revenues for the banks in 2011.

Forty per cent, £4bn, of these revenues came from the difference between interest charged to borrowers and interest paid out to depositors.

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