Savings accounts market is failing consumersWhich? calls for regulator to take action

02 August 2014

Which? Scrap the savings trap campaign image pigs

More problems in the cash savings market have been uncovered by Which? 

In a new report, we reviewed over 2,000 savings and cash Isa accounts and found close to four in ten (39%) were ‘zombie’ accounts, closed to new customers and paying low returns. The number of accounts paying an AER of 0.5% or less has almost doubled since 2010, and those paying an AER of 0.1% or less has increased by a third.

Some accounts leave savers with next to no return on their money, despite their ‘high-value’ names – like the 0.05% from Cambridge Building Society’s ‘Instant Sapphire’ and Halifax’s ‘Liquid Gold’.

We estimate consumers are losing out to the tune of £4.3 billion a year by keeping their savings in poor paying accounts instead of moving their savings into an equivalent best rate account. 

Go further: Scrap the Savings Trap - sign our petition and help make it easier to find the best savings deal

Marketing loopholes

We also found savings providers exploiting loopholes in the voluntary guidelines around Annual Equivalent Rate (AER). This includes tactics like advertising a headline AER which doesn’t start immediately, so the account pays a lower rate for an initial period.

Go further: Psychology of marketing quiz - can you spot the tricks played by financial marketers? 

Zombie accounts

Another pitfall for savers are the ‘matured funds’ accounts which your money could end up in at the end of a fixed-term deal. We found the majority of these paid between 0.1% and 0.5% AER.

Other fixed-term accounts renewed automatically. As a result some consumers end up tied into a new deal without realising it, potentially missing out on a better interest rate or facing penalties for withdrawing their money.

Go further: Best Rate savings accounts - our tables are updated daily 

Interest rate confusion

We also found that fewer than one in five savers know what their interest rate is, and a quarter of those on a limited-time ‘bonus’ rate don’t know when it ends. This is partly down to banks failing to communicate clearly with their customers about interest rates - we found four banks which don’t show interest rates consistently on internet banking platforms at all.

Go further: Best Rate cash Isas - we've scoured the market for the best tax-free savings deals 

Sluggish Isa transfers

Our mystery-shopping investigation caught some providers telling customers it would take up to six weeks to transfer a cash Isa. That’s well over the industry guideline of 15 working days and discourages people from shopping around, hindering effective competition.

For competition to be effective, Which? is calling for providers to make it easier to switch and give consumers clear information to encourage them to shop around. 

Go further: Switching your cash Isa - we answer your most frequently-asked questions 

Which? calls for cash savings regulation

We’re calling for the Financial Conduct Authority (FCA), as it continues its investigation into the market, to take this golden opportunity to break with the regulatory failings of the past, and use its competition powers to revolutionise the savings market.  

Which? executive director, Richard Lloyd, said: 'It’s now time for the regulator to break with the failings of the past and put pressure on banks and building societies to scrap the savings trap. 

'We want the Financial Conduct Authority to revolutionise the savings market so loyalty is rewarded and consumers get a better return for their hard-earned savings.'

More on this...

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  • Best cash savings rates - hundreds of accounts compared
  • Call the Which? Money helpline - if you need help with Isa renewals