MONEY COMMENT
Watch Those Savings Rate Cuts!

By Cliff D'Arcy
August 13, 2003

Earlier this week, I was enjoying a drink with a friend in my local pub. This chap is a public servant with a very difficult, dangerous and stressful job, so he's looking forward to taking early retirement -- ideally before he reaches fifty. I explained to my chum that he is already in a pretty good position: he has no unsecured debts (no loans, cards or overdraft), no mortgage (he paid off his mortgage as fast as he could and now owns his home outright), plus he has substantial savings.

So, there we were, chatting away, discussing the advantages of being in a final-salary pension scheme in the public sector. Then my friend mentioned that he had £45,000 on deposit with the Abbey National (LSE: ANL) and earned around a fiver a month in interest. I did a lightning mental calculation and suggested that his figures must be wildly out -- surely he meant about £120 a month on a sum of that size?

My thinking went like this: if his money earns interest at 4%, he'd get 0.04 x 45,000 = £1,800 a year in interest. Deducting 20% tax gives him 0.8 x 1,800 = £1,440. That's easy to work out -- it's £120 a month. I suggested to my chum that he visit his local Abbey National branch to check the interest rate on his account, because it was much too low.

I suspected that he had an 'obsolete account', which is what you end up with when banks stop promoting a type of account and cut the interest rate to the bone on the sly, hoping loyal customers won't notice how unattractive it has become. A cheap trick, wouldn't you agree?

Sure enough, he visited his Abbey National yesterday and was stunned to discover that he was earning a shameful 0.1% interest a year. That's an utter disgrace -- it's the same as the rate paid by an old-fashioned current account with one of the Big Four banks. Hence, he was earning around £3 a month instead of £120!!!

Needless to say, he immediately transferred his cash into a higher-paying account, earning twenty-five times as much interest straight away. It goes without saying that, when he gets back from holiday, he's going to wave goodbye to the 'Shabby National' and move his money to one of the top-paying accounts (probably an online, postal or telephone account, as he rarely needs access to this money).

What's more, I'm going to help him draft a letter to the Abbey, with the aim of winning him substantial compensation. That's because he doesn't recall ever receiving any letters from the 'Shabby' notifying him of interest rates cuts, which means that it has broken the Banking Code governing the treatment of obsolete accounts. He's going to give half of any damages to a charity of my choosing, because I never take money from helping out friends with their finances. After all, you can read my advice completely free on this site!

So, if you've got a few quid on deposit here and there, why not bring it all together and drop it into one of the highest-paying accounts? Once you've done that, keep a close eye on the interest rate and move on if your provider becomes miserly in the future!

More: Visit our Savings Centre | How To Complain And Win | Banking Code Standards Board.