New rules come into effect this week that mean banks must warn savers about interest rate cuts and give them the chance to move their money before the lower rate applies.
How much notice of rate cuts savers will receive depends on the type of savings account they have as well as their balance. But despite the rule change rates can still be cut by as much as 0.25% without the customer being informed.
The new rules have been introduced by the Financial Services Authority (FSA) and say that banks and building societies must give customers “reasonable warning” of any “material change” if the rate on a savings account is reduced. They must also remind customers when any introductory bonus runs out.
The Banking Standards Code previously required that banks inform customers about interest rate changes on savings accounts but up until November the code was voluntary. It’s had statutory force since then but a new code, overseen by the FSA, came into effect at the beginning of May.
The new rules cover most cash ISAs, notice accounts and easy access savings accounts. However there is no set definition of what “reasonable warning” or “material change” are – it’s up to savings providers to decide.
The British Bankers Association and Building Societies’ Association suggest that if the rate is cut by more than 0.25% and the saver has £500 or more in the account they should expect between 14 and 30 days’ notice of the change.
For accounts that have an introductory bonus of at least six months, savers should get between 14 days’ and three months notice of the rate change.
Some instant access accounts are governed by another set of rules set by the European payment regulations. They say that savers should get 60 days’ notice of any rate cut. The EPR rules cover 'payment accounts', which basically means current accounts, but some easy access savings accounts come under these rules too.
Tips to make sure you’re getting the best savings rate:
• If you don’t need instant access to your money, consider a notice account or fixed rate bond. These types of account generally come with higher rates than easy access accounts.
• If you opt for an account with an introductory bonus make a note of when this ends and look around for a better paying account.
• If you have a current account with a high in-credit interest rate you might be better off keeping some of your savings in that account. For example, Alliance & Leicester’s Premier Direct pays 5% on balances up to £2,500 fixed for a year.
• Make the most of your cash ISA allowance which is £5,100 a year. Interest on money in cash ISAs is paid tax-free.