The Financial Conduct Authority has published the results of its investigation to the savings accounts paying the least interest in the UK. Shockingly, it found a Post Office savings account that doesn't pay a penny in interest, and a Danske Bank account and an Ulster Bank account paying just 0.01%. So what can you do about it?
The Post Office account in question was an easy access cash savings account that can be managed in the branch, it headed the table of the worst payers.
The worst paying accounts (savings accounts that can be accessed in a branch)
Post Office (closed and open accounts) 0%
Danske Bank (closed and open accounts) 0.01%
Ulster Bank (closed and open accounts) 0.01%
First Trust Bank (closed and open accounts) 0.05%
HSBC (closed and open accounts) 0.05%
Co-op (closed accounts) 0.06%
Bank of Scotland (closed accounts) 0.1%
Cambridge Building Society (closed and open accounts) 0.1%
Clydesdale Bank (closed and open accounts) 0.1%
Halifax (closed accounts) 0.1%
Lloyds Bank (closed accounts) 0.1%
OneSavings Bank (closed and open accounts) 0.1%
Principality Building Society (open accounts) 0.1%
Santander (closed and open accounts) 0.1%
Skipton Building Society (closed accounts) 0.1%
Virgin Money (closed accounts) 0.1%
Yorkshire Bank (closed and open accounts) 0.1%
The FCA is looking into the paltry interest rates offered on closed accounts in particular. The banks run these accounts for a period, and then close them to new savers and open a different one. This practice allows them to slash the rates on the closed accounts - because they're not trying to attract new customers - so that anyone who fails to switch, is left languishing in a terrible account.
Danny Cox, a Chartered Financial Planner at Hargreaves Lansdown adds: "Long standing customers in closed accounts are getting a raw deal with many providers taking advantage. Providers seem perfectly happy to let savings held in closed accounts wither on the vine and in some cases pay no interest at all. This shows the importance of shopping around and switching accounts to make the most of your money."
What should you do?
The FCA is using what it calls a 'sunlight remedy' in the hope that shining a light on these accounts will embarrass lenders into improving them, or enlighten savers into moving.
This is a timely reminder that we need to know where our savings are, and how hard they are working for us. If the rates are poor, then it's time to switch.
Cox says that it's useful to go through a five step plan with your savings:
1. Pay down debt - the cost of borrowing is almost certainly higher than the returns from your cash savings, so you'll be better off this way.
2. Shop around - some closed accounts pay no interest and often pay significantly less than open accounts. Shopping around and then switching should improve your returns - in some cases more than 10 fold.
You can also consider fixed term accounts - which offer higher interest rates in return for tying your money up, and current accounts, some of which are currently more rewarding than savings accounts.
3. Use your tax breaks - fully use your personal allowance and the new personal savings allowance. Combine these and a basic rate taxpaying couple can receive £24,000 in income and interest this tax year, completely tax-free.
4. Use ISA allowances - An ISA shelters interest from the taxman and this can improve your overall returns. Even with the new personal savings allowance, using your ISA allowance is good tax saving discipline.
Certain types of ISA have other benefits: the Help to Buy ISA provides a 25% government bonus to first time buyers when they buy a property. From April 2017, the Lifetime ISA will also provide a 25% bonus to savers under 40 either to help first time buyers onto the property ladder or for longer term retirement savings.
5. Consider switching some long term savings from cash to the stock market - it's important to hold some cash, but not too much. While income from a £10,000 cash deposit has fallen by 86% since 1996, dividend income from a popular equity income fund has remained steady (while the capital has increased to £39,930).