Savers: are you stuck in the doghouse?

Think you're getting a good deal from your account? You can't afford to be complacent, says Steve Lodge

Savers in the UK's worst-paying accounts could get up to 10 times as much interest by switching to the best-paying, without any loss of access and sticking with secure institutions, according to an analysis by the Independent on Sunday.

At worst, people with as much as pounds 5,000 in a standard building society savings account are earning just 0.6 per cent in interest. Even with as much as pounds 20,000, the same account - from Northern Rock building society - pays just 1 per cent. Worse still, these rates are before tax: a higher- rate taxpayer would see the 0.6 per cent shrink to just 0.36 per cent, or pounds 3.60 a year for each pounds 1,000 of savings, after tax.

By comparison the recently launched Sainsbury Bank Instant Access account (withdrawals from which can be made by Link cashpoint cards) as of last week pays 6.15 per cent on balances as little as pounds 1.

This is the most extreme example of the difference in rates, but as our table of "dog accounts" shows, there is a whole range of institutions paying very low amounts of interest on surprisingly high savings balances. Many of the bad deals highlighted are on traditional branch-based instant access accounts that, while not heavily promoted to new savers, have been very popular in the past and are still held by tens of thousands. Savers could be throwing away as much as hundreds of pounds of interest through not having reviewed the deal they are getting.

Savers with converting societies should be sure to shop around as soon as they have their free shares, but our table also includes poor savings deals from the Bradford & Bingley and Yorkshire building societies, both of which have insisted that customers are better off with them remaining mutuals.

Whatever the type of institution, the rates in the table are galling given that base interest rates have increased by a total of 0.75 per cent to 6.5 per cent recently and mortgage rates are now pushing 8 per cent. Furthermore none of the rates quoted is higher than inflation, currently 2.6 per cent, so even in these low-inflation times, savers with their money in these accounts are losing out in real terms.

In the case of the Northern Rock, the society is able to get away with such low rates because savers are hanging on for their free shares, which are due to be handed out on 1 Oct-ober. However, the society has already said that savers can withdraw cash without affecting their eligibility, with the caveat that they have to keep a qualifying account open. Under its proposed handout all savers will get the same number of free shares, so there is no obvious advantage in keeping account balances high.

True, if an offer was made to buy Northern Rock before it reaches the stock market the predator could link a new handout to the present size of account balances. But savers could also switch to another Northern Rock account in the meantime to maintain their overall stake. Select Instant, for example, is a postal account paying 6.35 per cent on pounds 5,000 and allowing three withdrawals a year. Savers in the two poor-paying deals in the table need only keep a balance of pounds 1 to keep their old accounts open.

Likewise savers will want to

bear in mind the windfall implications of opening and closing other accounts. Last week there was renewed speculation about further windfalls, to the point that Nationwide building society became so overwhelmed with new accounts it will no longer accept new customers.

In many cases building society customers may find they they do not need to switch to another institution to get a better deal, so allowing them to retain their stake in any potential future windfall. Yorkshire building society, for example, while claiming that the low rates quoted on its Golden Key instant access account and Platinum Key 60 day notice account (now also closed to new savers) are "reflective of the market" and that "being a mutual does not mean giving the best rates all the time", says savers with pounds 2,000 could benefit by switching to its First Class Access account and earn 5.65 per cent. This is a postal account that can be accessed through any Link cashpoint; it is also a membership account.

Bradford & Bingley says its Premier Deposit instant access account is aimed at clubs, and individual savers would be better off switching to its First Choice instant access account, which the society has pledged will pay a higher rate than the average of similar accounts from banks and converting societies. It adds that the interest rates on its Timesaver account reflect the cost of administering an account that offers a cashpoint card, although that has not stopped other institutions offering better deals on cashpoint-operated accounts.

Savers in the named "dog accounts"might question why banks and societies do not tell them about better deals on offer from the same institution. Many societies do claim that savers are often informed that they could get a better deal by branch staff, but individual mailings advocating switches are highly unusual. And, of course, in practice banks and societies stand to benefit from this inertia.

While there is no requirement on institutions to tell savers where they might do better, savers should become more aware of the deal they are actually getting from next month. Under a new banking code of practice that also covers all the building societies, banks and societies will be required to write to all savers at least once a year with details of the interest rate they are being paid. Furthermore, any time an interest rate is changed, banks and societies will have a choice of writing to affected individuals with details of the changes or carrying notices and leaflets in their branches, in which case they will also have to advertise the changes in the press.

A spokeswoman for the Building Society Ombudsman, which arbitrates on complaints about societies, said that while she sympathised with savers paid poor rates in accounts whose names - such as "High Rise Deposit" - suggested otherwise, she said in most cases the ombudsman could not dictate what rates should be paid. Societies are required not to hide their rates, and in most cases they are relatively easy to check, even for accounts that are closed to new savers. Societies are now not as bad as they have been about paying poor rates on closed or "obsolete" accounts, she said, and savers themselves had to take responsibility for choosing a good account, and reviewing its rate.

But one difficulty that remains for savers is in finding out how their account actually compares. Moneyfacts, a firm of analysts that produces our Best Savings and Borrowing Rates tables (see below), also produces a monthly publication that includes all saving and borrowing rates. Readers can get the latest copy of Moneyfacts to make their comparisons by calling 01692 500677.

ROUGH DEALS FOR SAVERS

Bank/building society Balance Interest rate

(gross)

Alliance & Leicester Instant Access pounds 5,000 2.6%

Birmingham Midshires Quantum Instant pounds 5,000 1.35%

Bradford & Bingley Timesaver pounds 5,000 1.6%

Bradford & Bingley Premier Deposit pounds 5,000 1.85%

Chelsea Instant Option pounds 2,500 1.75%

Coventry Money Maker pounds 2,500 1.3%

C&G Cheltenham Gold pounds 5,000 1.25%

Derbyshire Triple Gold pounds 5,000 2.55%

Leeds & Holbeck Gold Access pounds 2,500 2.15%

Northern Rock Instant Access pounds 20,000 1%

Northern Rock Instant Access pounds 5,000 0.6%

Northern Rock 120-day Account pounds 5,000 2.15%

Norwich & Peterborough High Rise Deposit pounds 5,000 1.9%

Yorkshire Golden Key pounds 5,000 2.35%

Yorkshire Platinum Key (60-day notice) pounds 5,000 2.6%