Has your ISA had a sneaky rate cut?

Bank customers whose Isas have suffered a sneaky rate cut may be able to claim compensation via the Financial Ombudsman Service (FCS) - even if the official regulations mean that the bank didn't need to tell you about the cut.

By law, banks are obliged to warn customers if they are making a 'material' cut in rates. This, says the voluntary Banking Code, means a cut in interest rates on individual accounts of up to 0.25% at a time, or 0.5% over the year. If a customer saves less than £500, there's no need for the bank to notify them at all.

However, the FCS has made public a number of cases in which it's upheld complaints against banks, even though they've technically stuck to the rules.

These include a woman who lost £125 a year on her £50,000 Isa after the rate was cut twice by 0.25% and twice by 0.24% in a period of two years. The bank claimed that this reduction was so small it didn't have to personally notify the customer - who had been with the bank for 20 years.

"However, we explained that the fact that the rules give £500 as a guide doesn't mean that businesses can ignore customers' individual concerns," the ombudsman says.

"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."

The guidelines were introduced back in 2010, when the savings market was very different: interest rates were much higher, and banks rarely made cuts to their rates. However, since then, rates have fallen sharply, and many banks have imposed a sort of death by a thousand cuts, making a series of small reductions that fall within the Banking Code guidelines.

"As the ombudsman complaints show, some banks are still interpreting 'material' in a way that is not very fair for the customer," James Daley, a consumer campaigner from Fairer Finance, tells the Daily Telegraph.
"I've never understood why banks are not obliged to personally inform their customers of every change to their interest rate - no matter how small. They should send an email as well as a text message and a letter."

If you believe that you've been a victim of a stealth increase, you can complain to the ombudsman via its website. It will, it says, look at each case on its merits, taking into account how much money is in the account, the amount of warning the customer is given and how much money they've lost from the change.

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