Ban misleading account names, banks told

http://www.theguardian.com/money/2015/jul/23/ban-misleading-account-names-banks-told

Version 0 of 1.

Enticing names such as Liquid Gold and Gold Saver on savings accounts that pay some of the worst rates of interest could become a thing of the past under rules proposed by the City watchdog.

In a proposed shake-up of the £700bn savings market, the Financial Conduct Authority (FCA) said accounts with low interest rates should not be given names that are misleading, and that it would take action against banks and building societies that continue to do so.

“Account names should not mislead consumers,” the FCA said.

Providers should have been doing these basics as a matter of course

“This applies equally pre- and post-sale. An account name could become misleading after the account has been opened as a result of [interest rate] changes.”

The idea, opposed by banks, should see the end of accounts like the notorious Liquid Gold from Halifax. The account has been around since the 1980s when Arthur Daley, played in the ad by George Cole, promised the account would be a “nice little earner”. At the time it paid 10% interest; now it pays 0.05%.

In a recent Dispatches programme on Channel 4 researchers asked a number of people which savings accounts they thought paid the best interest rates. The majority went for ones that included words such as “gold”.

The proposal is one of many in a 75-page report aimed at making switching cash savings accounts quicker and easier.

The FCA will introduce a series of rules to force firms to provide clear information on the interest rates on their cash savings products as well as alerting consumers to changes in interest rates or the end of an introductory rate.

“Our package of measures are all about giving consumers the information they need to make an informed decision about what to do with their savings, and the ability to act on it quickly,” said Christopher Woolard, director of strategy and competition at the FCA.

One of the proposals will force banks and building societies to tell savers about the end of a bonus rate no more than 14 days before it is due to end, perhaps by text.

“This change is long overdue,” said Anna Bowes of savingschampion.co.uk. “At the moment many banks tell someone their bonus rate will end months before it is due to do so. This means they either switch then and lose the extra interest or risk waiting and forgetting to do so.”

The rules will also speed up Isa switching, requiring providers to move people’s money within seven working days, instead of the current 15, by January 2017. The remedies come on the back of the watchdog’s cash savings market study published in January 2015.

The study found that providers have significant amounts of consumers’ savings balances in old accounts which pay lower interest rates than those opened more recently.

It also found that the largest banks and building societies had considerable advantages because they could attract most easy-access balances despite offering lower interest rates.

It said that 80% of easy-access accounts had not been switched in the last three years as people were put off by a perceived complexity in switching.

However, the report will do nothing to increase the interest rates paid on savings accounts, which have hit rock bottom.

While savings rates started to fall as the base rate came down pre-2009, this continued in subsequent years despite there being no further central change. These cuts increased dramatically from summer 2012 when the government introduced the Funding for Lending scheme, which meant banks no longer needed to rely on savings deposits for capital. Just before the scheme started the best easy-access account paid 3.25%; now it is 1.6%.

Andrew Hagger of financial website moneycomms.co.uk said the FCA’s measures were “welcome but long overdue”.

“Providers should have been doing these basics as a matter of course and it shouldn’t have needed the regulator to step in to make it happen,” he said.

“Too often banks and building societies offer best buy deals for new customers while hoards of loyal savers on the back book are left with long forgotten deals paying next to nothing.”

The FCA is seeking feedback on these proposals and is expected to confirm finalised rules later this year. They intend for the rules to come into force in 2016.