skip tocontent

online technical resource

savings accounts: complaints that the interest rate is too low

This technical note deals with cases where a consumer complains to us that the interest rate on a savings or deposit account is too low.

overview

Savings rates are normally set by individual account providers, taking account of the economic climate and competitive market forces. We have no power to set interest rates - or to require financial businesses to be "competitive" in the rates they offer for particular accounts.

So we are not able to help with general concerns about the rates that financial businesses are paying to consumers on savings accounts.

Consumers complain to us about the interest rate paid on their deposit or savings account when:

  • they become aware that another account is paying a better rate of interest; or
  • the interest rate on their account is reduced.

Sometimes consumers say that their account provider should have taken more trouble to make them aware of alternative accounts - or to encourage them to move their money to a better-paying account.

Sometimes consumers say that their account provider had a duty to make sure its rates were competitive with other providers in the market.

Whatever the underlying issue may be, in all the cases we see the consumer believes that they should have received a better rate of interest on their savings.

what complaints do we see?

Consumers who complain to us usually point to one or more of the following:

  • They put money into an account, or left money there, without realising there was a better-paying account available that they could have moved to.
  • The financial business cut the interest rate unfairly - or without keeping properly to the terms of the account.
  • They left money in an account, not realising that their initial special interest-rate deal had ended and they were being paid a very low rate of interest.

what sorts of things will we take into account?

When we deal with a complaint like this, these are the sorts of things we normally need to consider:

  • whether the financial business gave the consumer any advice - and, if so, whether that advice was reasonable;
  • what the terms and conditions of the account say about how, and in what circumstances, the interest rate may be varied - and whether they take proper account of any relevant law;
  • whether the consumer was given sufficient and clear information by the financial business about the rate of interest;
  • any relevant industry codes, regulations or regulatory guidance applicable at the time;
  • whether the consumer was treated unfairly in some other relevant way;
  • what steps the consumer took (or failed to take) once they became aware of the problem.

There are some time limits that can affect what we can consider. If the complaint involves the interest rates paid on an account going back many years, some of the interest-rate changes could be outside our time limits - and so we may be unable to help.

was the financial business required to volunteer advice?

If a financial business actually gives advice, it must take responsibility if the advice it gives is wrong. But it is not generally required to offer or provide advice about savings accounts. In particular, a financial business does not usually have a duty to prompt a consumer to switch to another account.

Consumers can safeguard themselves from ending up in poor-paying accounts if they keep an eye on interest rates being offered generally - and check frequently on the particular rate being paid on their own account.

In many of the cases we see, the problem arose because the consumer assumed that - as the interest rate on their account had been among the best available at the time they opened it - it would always continue to be so.

has the financial business got the power to change the rate?

We can consider whether the account terms include the power to change the interest rate. It is very likely that they will do - but that may be subject to conditions, and we can consider whether those conditions have been met.

If the consumer chose their account on the basis of marketing material that they received, we can also consider the effect of any statements or promises made in that material.

did the financial business give proper notification of the changes to the account?

In considering this, we will look at the relevant industry code or regulatory provisions that were in place at the time the change in interest rate took place. We will also look at what the terms and conditions of the account say.

If the account terms are more favourable than other relevant provisions, we will generally consider it fair to give the consumer the benefit of those terms - since the financial business chose to offer them.

rate changes made on or after 1 November 2009

The Banking Conduct of Business Sourcebook (BCOBS) which was introduced in November 2009 says financial businesses must provide reasonable notice "on paper or another durable medium" - when making a "material" change in interest rates that will be to the disadvantage of the consumer.

When assessing whether a change is "material", BCOBS says that financial businesses should consider the size of the account balance and the size of the change in the rate. For some sorts of savings accounts, the Payment Services Regulations 2009 may apply in certain respects.

When - in an individual case - we consider whether a financial business has provided adequate rate change information, in a reasonable form, we take account of the relevant provisions of BCOBS (and of the payment services rules, if applicable) - as well as any special circumstances of which the financial business was aware.

In addition, BCOBS says that where a promotional or introductory rate expires after 1 May 2010, financial businesses are required to remind customers personally of that. This is so, whether or not the change would otherwise be "material".

"downgraded" accounts (1 March 2003 to 31 October 2009)

During the period from 1 March 2003 to 31 October 2009, the former Banking Code used the term "downgraded" to describe the situation where an account had:

  • the interest rate reduced by 0.5% or more within one year (either in one go or in a series of steps) compared to Bank of England base rate; or
  • the interest rate reduced by 0.25% or more in one movement compared to the Bank of England base rate.

This means an account was treated as "downgraded" if, for example:

  • the base rate was unchanged and the account's interest rate went down by 0.5% within one year or 0.25% in one movement; or
  • the base rate went up by 0.5% within one year or 0.25% in one movement and the account's interest rate was unchanged.

The Banking Code rules in relation to downgraded accounts containing at least £250 said that the financial business should contact the customer within 30 days, and:

  • say the account was downgraded;
  • give details of the financial business' other accounts and offer help in switching;
  • say that the customer could withdraw the money instead; and
  • waive for at least 60 days any notice or penalty for switching or withdrawal.

Where a complaint is brought to us about interest rate reductions made before 1 November 2009, we will take account of the relevant provisions of the Banking Code that covered that period.

"superseded" accounts (up to 28 February 2003)

Accounts which were closed to new customers - or which were no longer actively promoted - were known in the former Banking Code as "superseded" accounts. The Code said that:

  • the interest rate on the superseded account had to be kept up to the rate on an account in the financial business' current range with similar features - relating, for example, to notice periods, types of withdrawals, number of free withdrawals, how the account is accessed; and
  • if the financial business had no account with similar features, it should write to the customer within 30 days to say that the account was superseded - offering to help the customer switch to another of the financial business' own accounts, and waiving any notice period or charge.

A complaint about a change of rate prior to 28 February 2003 may be something that we cannot help with, because of the time limits that apply. However, where necessary, we would take account of these Code provisions for the relevant period.

Unfair Terms in Consumer Contracts Regulations

The Unfair Terms in Consumer Contracts Regulations apply for accounts opened since 1 July 1995 (or accounts which had substantial changes to the account terms relating to rate changes or notification of rate changes from this date).

We take into account any guidance on these regulations from the Office of Fair Trading or the Financial Services Authority - that was current at the time in question.

This will normally involve assessing the fairness and potential effect of the account terms themselves, in the circumstances when the account was opened (or the terms changed) - without the benefit of hindsight on how they were actually used later.

In some circumstances, the regulations may require the financial business to send the customer individual notice of the rate change and allow the customer to close the account freely - even though the Banking Code (or BCOBS if after 1 November 2009) does not require that.

If an account contains terms that apply to consumers who are "locked-in", we will consider whether or not the terms comply with the regulations.

unfairness

We have to decide cases on the basis of what we consider to be fair and reasonable in all the circumstances of the case - and we must take into account, where relevant:

  • law and regulations;
  • regulators' rules, guidance and standards;
  • codes of practice;
  • what we consider to have been good industry practice at the relevant time.

We might decide that the circumstances of a particular case were so unusual that, exceptionally, fairness required the financial business to do more than just follow what is said in relevant codes or regulations.

But usually - provided the financial business has correctly followed any relevant codes and regulations - we are unlikely to uphold a complaint where:

  • different interest rates broadly reflect the comparative cost of different "delivery channels" - for example, internet accounts, phone accounts, postal accounts, branch-based passbook accounts;
  • the account was instant-access without charges for withdrawals or closure, and interest rate details were reasonably accessible to the customer - so the customer could check the interest rate, and withdraw the money freely and immediately if dissatisfied with the rate;
  • the financial business gave the customer personal notification of an interest-rate change, waiving any notice period and penalty for a reasonable time - so the customer could withdraw their money freely and immediately if dissatisfied with the new rate;
  • the financial business did not take unfair advantage of withdrawal constraints or other relevant factors.

how will we assess loss and award compensation?

If we uphold a complaint, we will normally expect the financial business to make a payment that puts the consumer in the financial position they should have been in if things had been done correctly.

For example, we may decide to tell the business to:

  • pay the consumer the difference between the interest rate that the financial business applied to the account, and the interest rate the consumer would have received if the financial business had acted properly;
  • compensate the consumer for distress or inconvenience they have incurred;
  • waive without charge any tie-in period, if the consumer wishes to close the account.

If we decide that the interest rate change was not made in accordance with a valid term or the contract, we may decide that the change was not effective - in which case the financial business may be required to pay interest at the original rate.

If we find that a financial business failed to tell a customer that an account had been superseded or downgraded, we will normally consider what (if anything) the customer would probably have done differently if they had been told - and we will assess any compensation accordingly.

help for businesses and consumer advisers

contact our technical advice desk on 020 7964 1400

image: purse
  • The law requires us to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case.
    We take into account the law, regulators' rules and guidance, relevant codes and good industry practice at the relevant time.
    We do not have power to make rules for financial businesses.
    Our current approach may develop in the light of circumstances disclosed by further cases we receive.
    We may decide that fairness requires a different approach in a particular case.