FOOL'S EYE VIEW
Britain's Worst Savings Accounts

By Cliff D'Arcy
April 22, 2004

Last August, I wrote about a friend who had a £45,000 nest egg on deposit. He had assumed that he was being paid a handsome rate of interest on this tidy sum, but I couldn't make his figures add up: he was earning around £3 a month in interest after tax, rather than the £120 that I'd expected.

My friend was appalled to discover that he'd been a victim of 'obsolete account syndrome' - his bank had 'retired' his account and then slyly slashed its interest rate - almost to zero. Seeing the high rates of interest paid by the headline accounts in his bank's advertising, my chum simply assumed that he was enjoying similarly attractive rates. Not so: one estimate is that UK savers could make an extra £5 billion a year by switching to the best savings accounts!

Almost all banks and building societies play this trick on their customers - and rake in billions by doing so. I once described the endless rounds of 'launch new account, promote it heavily, withdraw it and then bury it' as confusion marketing. Banks follow this strategy for two reasons: to bamboozle customers and to manipulate the Best Buy tables!

The problem with identifying the villains in the savings market is that they are so numerous. A glance at the April issue of Moneyfacts - the financial writer's handbook - lists ten pages of bog-standard savings accounts, and there are horrors on every page! So, I've listed the UK's biggest banks and building societies in the tables below, together with their worst savings account - many of which are discontinued or instant access accounts.

Here goes (note that these are gross AERs (annual equivalent rates); taxpayers will lose a fifth or two-fifths of their interest to the taxman):

Some of these companies will argue that these are fair rates, given that many of these accounts offer instant or unlimited access with passbooks or cashcards, but that's just pure hogwash! After all, there are full-service current accounts paying annual interest of up to 4.75%.

Practically every single one of these accounts could be described as a complete and utter rip-off (with the honourable exception of the Portman BS), especially those paying a pathetic 0.1% (that's annual interest of £1 for every £1,000 saved!). I found hundreds of poor-value accounts during my lengthy trawl of these companies' websites, which suggests that tens of millions of savers are being taken for a ride.

If you want to earn a better rate on your savings today, check out these accounts, which have no introductory bonuses or other gimmicks:

• If you'd like easy access by Internet or telephone, ING Direct pays 4.50% AER on every pound (you can open an account via the Fool).
• If you'd like branch access and a cashcard (for the LINK network), Alliance & Leicester's EasySaver pays 3.35% AER (with a £1 fee for counter withdrawals)

Think of it this way: your money should work as hard as you do - and you'd put up a mighty fuss if your employer started cutting your wage on the quiet, wouldn't you?

So, if you have savings all over the place, why not bring them all together and pop them into a higher-paying account? You could make 45 times as much interest - and cut down on your paperwork!

More: Find a better current account in our Online Banking centre.

Cliff owns shares in HBOS, parent company of Birmingham Midshires and Halifax.