Millions of savers may be unaware of the interest rates they are earning due to a complex system of account 'issues' used by banks, according to a report by Sylvia Morris for This is Money and Daily Mail. Latest figures from broker Hargreaves Lansdown suggest a third of savers have no idea about their current earnings.
The average rate on easy-access accounts currently stands at just 1.6 percent, a figure that includes both actively marketed accounts and those closed to new customers. However, the actual rates can vary dramatically depending on the specific 'issue' of an account a customer holds.
Some banks now offer over 100 different versions of what are essentially the same easy-access savings product. For instance, Cynergy Bank's Online Easy Access Account, on its 101st issue, offers 4.15 percent, which includes a two-percentage-point bonus for the first year. In contrast, customers holding earlier issues of the same account, ranging from 1 to 82, might be earning as little as 0.75 percent. Other older issues from the same bank pay between 1.6 percent and 1.9 percent, while its 100th issue offers 4.55 percent with a one-year bonus.
This practice is described as a "bonkers and confusing system" designed to obscure the true interest rates from savers. Banks and building societies reportedly hope that customers will not notice the difference between various issue numbers for accounts that may share similar names. This can lead to a significant disparity in earnings, with some customers receiving over 4 percent while others earn less than 2 percent.
Examples of this practice include the Post Office Online Saver, currently on issue 89 and paying 4.31 percent with a 12-month bonus. However, customers holding issues 1 through 80 of this account receive only 0.9 percent. Similarly, Charter Savings Bank's Easy Access account, issue 78, offers 4.21 percent, while some older issues pay 3.15 percent.
The issue affects easy-access cash ISAs as well. The Post Office Online Isa Easy Access, on issue 52, offers 4.16 percent including a 3.26-point bonus for 12 months. Customers in issues 1 to 47 of this ISA receive just 0.9 percent. Charter Savings Bank's Cash ISA, on issue 82, pays 4.26 percent, but older issues offer rates as low as 3.1 percent.
With inflation running at 2.9 percent, savers earning less than this rate are experiencing a decline in the real value of their money. The report highlights that while headline rates are used to attract new customers, loyal savers often receive substantially less, a situation exemplified by the 'issue-number trick.'
Another common tactic involves offering top-paying accounts for a limited period, typically one year. Once any introductory bonus expires, the interest rates often fall significantly. Tesco Instant Access Cash Isa, for example, pays 4.2 percent, but 3.15 percentage points of this rate is a one-year bonus. The Post Office Online Isa also includes a substantial portion of its rate as a temporary bonus.
Savers are advised to look beyond headline rates, check their specific account issue number, and verify the exact interest they are earning to avoid being disadvantaged by these practices.