Banks under fire for ‘outdated’ methods of communication

Jul 31 2010 by Iain Laing, The Journal

THE majority of banks are failing to inform customers about changes to the interest they are earning on their cash, says a consumer group.

Which? Money found that only four of the 12 banks and building societies it investigated guaranteed that they would personally inform their customers about savings rate changes.

The other groups relied largely on people seeing adverts in newspapers or visiting their branches to find about interest rate cuts or rises.

The four providers that promised to inform their customers of any interest rate cuts by letter or email were Cheltenham & Gloucester, first direct, the Co-operative Bank and ING Direct. Other banks said they would personally notify customers only if the rate they were receiving was cut by more than 0.25%, or if a series of smaller cuts added up to more than 0.5% during a year.

But Which? Money said with the Bank of England base rate currently at a record low of 0.5%, this policy could lead to customers not being notified about rate cuts that were “proportionately very large”.

Peter Vicary-Smith, chief executive of Which?, said: “Our rigorous research shows that outdated and inconvenient methods of notice on interest rate changes are keeping savers in the dark for longer, at a time when they need greater disclosure than ever before. This is just another example of banks treating their customers badly.

“As our latest savings satisfaction survey shows, once again it’s the smaller players that offer better service and have happier customers.”

The group also warned that the proportion of mortgages and regular savings accounts that were available only to people who had another product with the same provider had “increased dramatically” since the beginning of the year.

It said not only did this discourage consumers from shopping around to get the best deals, but in some cases the tied products offered poor value for money.

It said first direct was currently offering one of the cheapest five-year fixed rate mortgages for people borrowing 65% of their home’s value, but in order to get this, people had to take out a current account that did not pay interest if they were in credit.

Mr Vicary-Smith said: “If you’re considering taking out a tied product, look at the whole package to work out whether it offers a good deal.”

The British Bankers’ Association said: “Banks will always inform customers of any significant downward movement in interest rates on their accounts.

“This is stipulated by the Financial Services Authority in its banking regulations.

“The banking industry has further clarified this, ensuring that customers will be personally notified in advance of any downward move of more than 0.25% if the savings account has a balance of £500 or more.”

It added that if customers were notified every time there was a negative interest rate change, around 13.5 million letters would have to be sent out each time there was a base rate change.

The cost to banks would be around 50p per letter.

Barclays also said that since November last year it committed to notifying all savings customers of any unfavourable changes to their account by letter, giving them two months’ notice of the changes.