Are the big banks targeting disillusioned customers from ING Direct?
Rachel Thrussell Head of Savings at Moneyfacts.co.uk comments:
“Many consumers don’t keep an eye on the savings rate their bank or building society pays them. To an extent, institutions will rely on this apathy, hoping that people will be oblivious to the situation and will continue to leave their hard earned credit balances in an account that pays an uncompetitive rate of return.
“The decision by the one-time kings of the savings market, ING Direct, not to pass on the 0.25% base rate hike to their loyal customers for the second time in two months is a stark reminder of how things can change.
“In the summer of 2003, just a couple of months after launch, ING was paying 4.30%, which at the time was 0.80% above the Bank of England base rate of 3.50%. Now it is paying 4.75%, which is currently 0.50% below base rate – a downward swing of 1.30%.
“And ING certainly hasn’t had it all its own way during the last six months, especially with the likes of Birmingham Midshires direct tracker account launched last July and Icesave launched in October currently offering best buy interest rates of 5.50% AER and 5.70% AER respectively.
“This week we have seen new savings products launched by a couple of the banking heavyweights which are perhaps anticipating an exodus of customers from ING Direct and are offering what on the face of it appear to be tempting deals for those seeking a new home for their nest egg, offering headline interest rates to beat Icesave.
“But don’t be fooled into thinking these offer direct competition to the likes of Icesave, Bradford & Bingley or Birmingham Midshires. With high cost bases the high street banks will struggle to compete directly with the low cost internet offerings. Whilst the rates can look attractive, the accounts will often contain restrictive terms and conditions and as in the following two examples where the term ‘instant access’ is used very loosely.
“Bank of Scotland has launched IASA Reward paying 5.75% AER fixed for 12 months with a minimum balance of £5,000. However although it is described as an ‘instant savings’ account, you are only allowed one withdrawal during the one year term, and if you exceed this, then the account reverts to a variable interest rate account.
“Similarly HSBC has launched a limited offer with its online saver account paying 5.75% AER from balances of £1, but beware that if you make a withdrawal, you forfeit interest on your entire balance for that calendar month.
“As with many new accounts neither of these latest examples sit comfortably within a defined category such as a instant access, notice or fixed term account. This aside, better rates and deals can often be found with accounts which know their identity: if you want a truly instant access account then the Icesave account paying 5.70% cannot be beaten at the moment. But if you are prepared to sacrifice access to your money, for say a period of 12 months, rates in excess of 6% can be found.
“Consumers have told moneyfacts.co.uk they are fed up with ‘jumping through hoops’ to bag themselves a decent rate of return. So make sure when signing up for your new savings account that you check if there are any restrictions, withdrawal limits or charges for withdrawals. If you are happy with the terms, ensure you are receiving a better rate in return.
“Often these best buy no frills accounts will be offered by banks and building societies you may not have heard of before and will probably not be found on the high street, But don’t be put off by this – it’s often the reason why their rates can be so competitive. If you choose any account listed by moneyfacts.co.uk you can rest assured the institution subscribes to the Banking Code and is authorised by the FSA.
“Sometimes you can lose out financially by remaining loyal to your existing bank, so why not take the time to shop around and get your hands on the best deals available?”
NOTES TO EDITORS:
Moneyfacts Group
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