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ombudsman news

issue 124

March/April 2015

ISAs and savings accounts

For six years now, the Bank of England base interest rate has been historically low. This has received a lot of media attention - including concerns about the impact on savers and questions about whether it’s worth putting money away at all.

In this environment, we’ve seen savings providers offering a variety of deals on individual savings accounts (ISAs) and other savings accounts - including introductory and “bonus” interest rates for some products, and better rates on online-only or telephone-only products. While it isn’t our role to take a view about products and interest rates that businesses choose to offer in general, we can look into whether individual customers have been treated fairly.

For example, if someone complains that a business has changed the interest rate on a long-held savings account, we look for evidence about how the change was handled. As well as checking that the business followed the relevant rules and guidance, we also look at how they considered their customer’s particular concerns.

The majority of complaints we see about savings accounts relate to administrative issues. Whether they’re down to “human error” or the result of a system going wrong, these problems can have a significant impact on people’s savings. But they can often be resolved fairly easily - for example, by making up the interest that would have been earned while a money transfer was delayed. In our experience, a well-handled query or complaint can save a long-standing customer relationship.

In other cases, putting things right can be more complex. For instance, if someone complains they’ve lost out on the chance to invest their money, it’s important to establish whether the business is at fault - and if so, what that customer would have done if the business hadn’t made a mistake. And if someone has lost their tax-free savings allowance for the financial year, careful thought needs to be given to how to put things right - bearing in mind the possible tax implications.

index of case studies

  • 124/8 - consumer complains that she hasn’t been personally notified about fall in interest rate
  • 124/9 - consumer complains that "introductory bonus" interest rate on his ISA was removed early
  • 124/10 - consumer complains that bank branch won't give her information about online savings account
  • 124/11 - consumer complains that bank's mistake caused him to miss ISA deadline
  • 124/12 - consumer complains that bank's mistake caused him to lose out on tax-free savings
  • 124/13 - consumer complains that bank gave wrong information about ISA maturity date
  • 124/14 - consumer complains that compensation for missed ISA allowance is too low

124/8
consumer complains that she hasn't been personally notified about fall in interest rate

Ms A had saved with the same building society for almost 20 years - and had built up around £50,000.

Looking back over her statements one day, Ms A noticed that the interest rate on her savings account had dropped considerably over the past two years. Disappointed, she rang the building society to ask why she hadn’t been told. The person she spoke to said that all changes to interest rates were advertised on the building society’s website - and that all customers had been sent a letter telling them this.

Ms A quickly moved her savings to a different account with a higher interest rate - and then complained to the building society. She explained that she remembered receiving the standard letter about interest rates being shown online. But she didn’t have a computer - and felt that, given the big impact on her savings, the building society should have written to her when the interest rate changes happened.

However, the building society said that the change was so small that they didn’t have to “personally” notify Ms A. Unhappy with this response, Ms A contacted us.

complaint upheld
The building society felt very strongly that they’d acted in line with the rules - which said they didn’t have to notify their customers if an interest rate change wasn’t “material”.

The rules they were referring to said that if a customer has more than £500 in their savings account, then a fall of more than 0.25% would be considered “material”. And so would a total fall of 0.5% over a 12-month period. They pointed out that Ms A’s interest rate hadn’t ever fallen by more than 0.25%. In two years, it had fallen twice by 0.25% and twice by 0.24%.

However, we explained that the fact that the rules give £500 as a guide doesn’t mean that businesses can ignore customers’ individual concerns. And we felt the building society hadn’t given enough thought to the considerable size of Ms A’s balance - particularly as the interest rate changes they’d applied were at the threshold for notifying (or not notifying) their customers.

Following the building society’s current approach, if they changed their interest rate by 0.26%, they’d personally notify someone with £500 in their account - who would lose out by £1.30. But they wouldn’t notify someone in Ms A’s position - where a rate change of 0.25% would mean a gross loss of £125 each year.

Given this, we decided that the change in the building society’s interest rate was “material” in Ms A’s case. So, in line with the rules, she should have been notified in a “durable medium” like a personal letter or email.

It appeared that Ms A had moved her savings as soon as she found out about the interest rate changes. So the return on her savings was clearly important to her. We thought that if she’d been personally notified when her interest rate changed, she would have changed accounts at that point.

So to put things right, we told the building society to make up the difference between the interest she’d actually received and the interest she would have received. This meant looking at how much she would have earned if she’d put her money into the higher-interest account she’d chosen - but at the time the interest rate first changed.

124/9
consumer complains that “introductory bonus” interest rate on his ISA was removed early

Mr F was planning on taking a gap year trip around the world - and had been trying to save as much as he could during his last year at college.

As well as moving back in with his parents, Mr F also sold his car. His parents told him that if he put the money from the car into a savings account, he’d earn some interest on it. So he opened a savings account with the bank he had a current account with. The account came with an “introductory bonus rate” which was due to end just before Mr F was planning to travel.

But six months after Mr F opened the account, he got a letter from the bank saying they were lowering the interest rate by 1%. Two months later, they wrote again to say they were removing the introductory bonus rate altogether - around four months earlier than originally advertised.

Disappointed, Mr F phoned the bank to complain - explaining that the high interest rate was the main reason he’d opened the account. The bank offered to move his money to a different savings account with a better interest rate - but still lower than the rate Mr F had originally expected. Unhappy with this, Mr F contacted us.

complaint upheld
We asked the bank for the terms and conditions of the savings account in question - to see what these said about changes to the interest rate. The terms and conditions said that the bank could change the interest rate at any time - as long as they wrote to customers to tell them.

In our view, this information was clearly set out - rather than being hidden in the small print. And Mr F had shown us the letter the bank had sent him to let him know what was happening - which we also thought was clear.

Taking all this information into account - and although we understood Mr F’s frustration - we explained that the bank hadn’t done anything wrong in choosing to lower their interest rate.

However, we also checked the terms and conditions to see if they mentioned completely removing the 12-month introductory bonus rate. And we couldn’t find anything to say that the bank was allowed to do this.

In light of this, we decided it was unfair for the bank to remove the bonus rate early - and told them to make up the interest that Mr F had lost out on.

124/10
consumer complains that bank branch won’t give her information about online savings account

Mrs P had been saving money for some time to help her grandson with the costs of university. Knowing the bonus rate on her savings account was coming to an end soon, she asked her daughter, Mrs K, to help her find a better deal. Mrs K saw an online advert for a different account - and drove her mother to the nearest branch of that bank to open one.

But when she got there, Mrs P was told that it was an “online only” account - so she could only open one through their website. Mrs P said that she didn’t have a computer - and asked if the cashier could just talk her through the account. She explained that her daughter would help her open it online later on, if they both thought it was a good deal.

But the cashier told Mrs P that they couldn’t give her any advice in the branch about any of their online accounts. Mrs P complained to the bank - saying that she thought the situation was inconvenient and unfair. When the bank said that was just their policy, she contacted us.

complaint not upheld
When we looked at the part of the bank’s website advertising the online account, we found that it said this particular account couldn’t be opened in a branch. But it seemed to us that the bank hadn’t been very sympathetic to Mrs P - and she felt frustrated as a result.

We explained to Mrs P that “advice” has a specific meaning when it comes to financial matters. And banks can choose not to offer “advice” about all the accounts they offer.

During our involvement, the bank offered to set up a meeting with Mrs P to talk about other ways she could save. They also sent her a bunch of flowers to recognise that she felt she’d been treated unfairly. Mrs P said she’d talk things through with the bank - but would also look for other, off-line offers elsewhere.

124/11
consumer complains that bank's mistake caused him to miss ISA deadline

Mr and Mrs S lived in a remote part of Scotland, an hour’s drive from the nearest bank branch. So they did most of their banking over the phone. At the very start of April, Mr S called his bank to transfer some money from his savings account to an ISA in Mrs S’s name.

Although Mr S had used phone banking many times before, he’d never transferred more than a few hundred pounds. When he tried to transfer money into Mrs S’s ISA, the adviser he spoke to told him that he could only move up to £2,000 in one go.

Mr S had been intending to put in the whole ISA allowance - more than twice this amount. However, he accepted what he’d been told and asked the bank to move £2,000 that day.

Two days later, the bank called Mr S to tell him that the payment had been stopped by their security system. Worried, and not sure what this meant, Mr S decided not to try again - and cancelled the transfer altogether.

By this time, the ISA deadline had passed for that year. Frustrated that he’d lost the chance to use his tax-free allowance, Mr S complained to the bank. But the bank said that it had been Mr S’s choice to cancel the payment - and that he wouldn’t have missed the deadline if he hadn’t “left it to the last minute”.

Although the bank offered him £20 to cover the cost of his phone calls, Mr S felt he’d been treated unfairly - and contacted us.

complaint upheld
We asked the bank to explain their rules for transferring money between accounts. We also asked for recordings of their phone calls with Mr S.

Looking at the bank’s internal rules, it appeared that different limits applied to different types of transfer. When we listened to Mr S’s call to the bank, we heard the bank’s adviser explain about the £2,000 limit.
But the adviser failed to explain that, because Mrs S’s ISA was with the same bank, another type of transfer was possible - as long as they had her authorisation. Under the rules applying to an “internal” transfer, there wasn’t a limit on the amount - and the money would have moved almost immediately.

We recognised that it had been Mr S’s choice to cancel the payment after it was blocked by the bank’s security systems. But we pointed out that the problem probably wouldn’t have arisen if the adviser had arranged an internal transfer. And it was likely that Mr S would have been able to transfer all the money he had wanted to - before the tax-free savings deadline.

So in the circumstances, we didn’t think it was fair for the bank to blame Mr S for missing the deadline. We told them that, in any case, if they didn’t want their customers to transfer money close to the deadline, they would need to make this clear well in advance.

We told the bank to make up the lost interest on the savings Mr S had wanted to transfer.

124/12
consumer complains that bank's mistake caused him to lose out on tax-free savings

Mr O had been trying to save up to buy an engagement ring for his girlfriend. He had been putting money aside in an ISA over the last year, but was disappointed with the interest he had earned. So he booked an appointment at the local branch of his bank to talk about other accounts - so he could get a better deal from now on.

Mr O did some research on the internet beforehand - and found a paid-for current account that would give him a higher interest rate. At the appointment, Mr O opened this account in joint names with his girlfriend.

A few days later, Mr O’s wages were due to be paid - and he checked his new bank account on his smartphone. But when he logged in, he realised that the bank had closed his ISA and transferred all his savings into his new current account.

Although Mr O notified his bank the same day, it took them over a month to respond. He then made a complaint - explaining that since the money had been in his bank account, his girlfriend had spent nearly half of it on furniture for their home, not realising that he’d been saving up.

The bank agreed to pay the interest he’d lost because his savings were no longer tax-free. But they refused to compensate him for any of the money spent by his girlfriend.

Mr O thought that they should pay this money back - because it was down to their mistake. Unhappy with the bank’s offer, he brought his complaint to us.

complaint partially upheld
First, we needed to look into why Mr O’s savings had been transferred into his current account.

We asked the bank for their records from Mr O’s appointment in the branch - to see if these suggested he’d said anything that might have led them to think he’d wanted to put his ISA savings into his new current account. But in fact, we found the branch adviser had noted - as Mr O had told us - that he’d wanted to leave that money where it was for the time being.

We then looked into whether the bank’s offer was fair. After considering how much Mr O had in his account at the time, how much he had saved in the past, and - based on this - how much we thought he would have continued to save, we decided that around three times as much would be a fairer offer. So we told the bank to make up the difference.

It was clear Mr O felt very strongly that the bank should repay the money he said that his girlfriend had spent. But when we looked at Mr O’s current account history since the bank made their mistake, we saw that the extra money had been spent with a card in his name - as well as with one in his girlfriend’s name.

This indicated that Mr O had also been spending his savings. So we explained that, in the circumstances, we didn’t think it was fair to ask the bank to return it.

124/13
consumer complains that bank gave wrong information about ISA maturity date

Miss N had invested all her savings in a two-year ISA. Shortly before the ISA was due to mature, she received a letter from her bank giving the maturity date - and inviting her to visit the branch on that date so that she could discuss what to do next with her savings.

When Miss N was filing the letter away, she noticed the original “welcome” letter gave a different maturity date to the one in the bank’s latest letter. After phoning the bank to check the dates, she arranged a meeting for the earlier of the two dates.

Miss N lived in a small village - and the closest branch was 45 minutes’ drive from her house. When she got to the bank, the adviser told her that her ISA hadn’t matured yet. They said they could take her instructions there and then - and reinvest the funds for her as soon as this was possible.

But Miss N told the adviser she felt they’d wasted her time - and went home. That afternoon, the branch phoned her to say that they could help if she came back two days later. Confused, Miss N returned on that day - and was told that her ISA had matured on the date of her original meeting with the adviser.

When Miss N wrote to complain, the bank said they “hadn’t made an error”. She didn’t agree - and asked for our view.

complaint resolved
Miss N sent us the two letters she’d received from the bank - two years apart. We saw that these gave different maturity dates.
We asked the bank for recordings of Miss N’s phone call to them. We found that they’d confirmed that the earlier of the two dates was the maturity date - and that Miss N should make her appointment for that day.

The bank told us that their customers couldn’t reinvest their funds on the same day that their ISAs matured. We pointed out that, if this was the case, their letter to Miss N had been wrong. And they hadn’t taken the chance to clarify the situation when she phoned them.

We recognised that the bank’s adviser had given Miss N the option of not going to the branch again. But the follow-up phone call had suggested that she should - and as a result, she’d made a second, unnecessary trip.

During our involvement, the bank acknowledged that they’d made a series of mistakes. They apologised, and said they’d pay Miss N’s petrol costs for the unnecessary trip. They also said that they’d make up any interest she’d missed out on because of the confusion they’d caused.

Miss N said she was glad the bank had apologised - and was willing to accept the offer.

124/14
consumer complains that compensation for missed ISA allowance is too low

Mr and Mrs C decided to each pay their full tax-free allowance into stocks and shares ISAs. So shortly before the tax year ended, they each arranged for a cheque to be paid from their joint bank account into two separate ISAs.

A couple of weeks into April, Mrs C got a letter confirming that her ISA had been set up - but Mr C didn’t. After a series of phone calls, Mr C managed to establish that his cheque was held up in the bank’s system - because it had been “flagged” for a security check. According to the bank, this was because Mrs C had previously signed most cheques from the couple’s joint account - so they’d had problems verifying Mr C’s signature.

As soon as the bank realised their mistake, they released the cheque and apologised. Acknowledging that that year’s “ISA window” had now passed, they offered to pay Mr C the interest that his money would have earned over the year in the highest-rate cash ISA available.

Mr C didn’t think this was fair. He pointed out to the bank that the interest rate on the cash ISA had been 2% - whereas the money he’d invested in a stocks and shares ISA in the previous year had earned more than 7%. When the bank wouldn’t change their position, he contacted us.

complaint upheld
Mr C’s financial adviser has sent us records showing that Mr C had invested in stocks and shares ISAs for the last few years - and was planning to do so for the foreseeable future. We noted that Mrs C’s cheque for exactly the same amount had been used to fund a stocks and shares ISA.

In light of this, we decided that 2% interest, in line with a cash ISA, wasn’t a fair offer. However, even though last year’s investment had performed well, the future performance of Mr C’s investment wasn’t guaranteed - so we didn’t think that 7% interest was fair either.

We suggested that the bank compensate Mr C based on a return of 5%, taxed at his normal rate and over a term of 10 years - given the evidence we had about his investment history and future plans. Both Mr C and the bank agreed that this seemed fair.

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ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.