MSE News: Government promises interest rates on savings statements

Former_MSE_Guy · 1 August 2011 at 4:52PM

This is the discussion thread for the following MSE News Story:

"Financial Secretary to the Treasury Mark Hoban says it's vital consumers know exactly the return they are getting on their cash ..."

Read the full story:
Government promises interest rates on savings statements

Reaper · 1 August 2011 at 6:26PM

EDIT: The news story is now showing and it turns out to be an interview with MSE, though the content seems to be much the same as what he says below.

The news article this relates to is missing, however if you want to know what it is all about here is the link to his speach and an extract:

Transparent

To do that, it’s also important that ISAs work in the interests of the consumer.
As I know you’re all well aware, there are some concerns surrounding whether ISAs are fulfilling this obligation.
Only recently the OFT was asked to investigate the cash ISA market after a super-complaint from Consumer Focus.
The OFT report raised concerns about both the transparency and the competitiveness of cash ISAs. And frankly, I found the report dispiriting.
I think that it damages savings and the financial services sector if customers can’t easily find out what interest rate they are getting on their statement, and if there’s high barriers to switching when it should be a relatively simple. There may be short term gains to providers at the cost of savers, but in the long term it will be to the detriment of both. If savers start asking whether it’s worth saving, you’ll lose customers.

Savings products have to be transparent if people are to have trust in the product, and trust in their providers.
One of most basic things people need to know about their account is the rate of interest they’re earning – this is fundamental!
It seems incredible that people should struggle to find out what this is - that it isn’t at the top of every statement...
...and remedying this was one of the OFTs recommendations.
I know that the industry in general has signed up to achieving this by 2012 – I also know that some of you have agreed to do it by next year, and that a few providers do this already.
But today I’d like to encourage you all to put this in place as soon as possible; to lead by example; and to reconnect with your customers.
The events of the financial crisis have damaged the bond that exists between the financial sector and its consumers. We need to restore this trust - and greater transparency is part of the answer.

SnowMan · 2 August 2011 at 12:01PM

Transparency is a good thing. And it is welcome news.

However the real problem is that savings institutions are able to pay lower rates on old accounts in the first place.

Every easy access saver offered by a savings institution should pay the same rate regardless of whether it was taken out 5 years ago or 2 months ago. Variations should be possible for things such as accounts with different access (e.g. internet only, postal etc) to reflect the costs of running the accounts but it shouldn't be possible for a savings institution to have a near identical internet saver 1 and internet saver 2 paying different rates.

At the moment the most successful savings institutions are those who are able to keep the most of their savers on older lower rates and the fewest on the top headline rates. Competition in the savings marketplace is about which organisation achieves the best confusion marketing to keep most costomers on the lowest rates. Shouldn't competition be about which savings institution is able to offer the best average savings rate?

It is not really possible for a savings institution to unilaterally offer the same rate at the moment to all savers as they will just not be able to offer competitive rates for new accounts (as other institutions will be subsidising the higher rates through the old lower paying accounts). So what is really required is all savings institutions to be forced through legislation to offer the same rate for all savers (or at least the threat of legislation).

Of course this would be to the disadvantage of people like me who careful tracks rates and constantly switches money about to get the best rates, however that doesn't mean the system is right just because it suits me.

It seems like as long as we make it clearer that people are getting ripped off by savings institutions that is OK, would it not be better to just stop people being ripped off in the first place?

That said if we accept that legislation is not going to happen to force institutions to pay the same rate to all savers, then next best is to reluctantly accept that making the low old account rates more obvious is the best that can be achieved.

edinburgher · 2 August 2011 at 12:36PM

It seems like as long as we make it clearer that people are getting ripped off by savings institutions that is OK, would it not be better to just stop people being ripped off in the first place?

For me, this very much hits the nail on the head. It's enough to know that banks aren't giving savers decent rates without knowing exactly how bad it is.

VT82 · 2 August 2011 at 1:43PM

SnowMan wrote: »

Of course this would be to the disadvantage of people like me who careful tracks rates and constantly switches money about to get the best rates, however that doesn't mean the system is right just because it suits me.

As I was reading your post, I was thinking 'can this really be arch rate-tart Snowman suggesting such a thing?!?', but you pointed the irony out for me

The problem with what you suggest is that 0.1% would be the rate for 'unlimited access' for pretty much every institution, then if say the Derbyshire wanted to be best buy at 3.11%, they would distinguish NetSaver1 by saying 'limited to 24 withdrawals a year'. then in a couple of years' time, when they have managed this rate down to 1.8% and they wanted to be best buy again, it would be 'NetSaver2 paying 3.14% limited to 30 withdrawals a year'. Then they could distinguish products by minimum operating balance, minimum/maximum transaction amounts, negligible notice periods etc. ad infinitum.

I know this because my job would be to make it happen

SnowMan · 2 August 2011 at 2:25PM

VT82 wrote: »

As I was reading your post, I was thinking 'can this really be arch rate-tart Snowman suggesting such a thing?!?', but you did it for me

The problem with what you suggest is that 0.1% would be the rate for 'unlimited access' for pretty much every institution, then if say the Derbyshire wanted to be best buy at 3.11%, they would distinguish NetSaver1 by saying 'limited to 24 withdrawals a year'. then in a couple of years' time, when they have managed this rate down to 1.8% and they wanted to be best buy again, it would be 'NetSaver2 paying 3.14% limited to 30 withdrawals a year'. Then they could distinguish products by minimum operating balance, minimum/maximum transaction amounts, negligible notice periods etc. ad infinitum.

I know this because my job would be to make it happen

I know what you are saying but there would be ways to stop this sort of thing happening.

One way would be to limit the types of accounts available. So at one extreme the only savings accounts that could be offered would be (say) an easy access account, a 30 day notice account, a regular saver account, an RPI linked account and fixed rate accounts for various terms.

Of course if you make it too restrictive then you limit the chance for a new account that meets a genuine need from being introduced. And you stop institutions from meeting statutory solvency requirements by drawing in new funds for example. So it is a case of getting the balance right. At the moment the balance is wrong and you only have to look at the very long lists of old account rates on any savings institution website to realise the balance is wrong.

Before any legislation was introduced you would have a period of consultation to design the system. It might be that new innovative accounts could be approved by the regulator based on the criteria of whether it meets a genuine need or whether it was just an attempt to confuse customers and complexify. You might limit the total number of accounts any one savings institution could offer within any particular category.

It is not just the savings industry where confusion marketing takes place and too may products exist in the marketplace. You only have to look at the utility industry and the unbelievable number of tarriffs available to see how things have got out of control and confusion and un-necessary complexity is a prominent part of that system also.

horsechestnut · 2 August 2011 at 5:17PM

Let us hope that they will also display the rate on on-line statements.
I feel that all accounts should have the interest rate displayed; including current accounts, together with brief terms and conditions e.g. only 3 withdrwals per year.

ChiefGrasscutter · 2 August 2011 at 6:27PM

I can remember the days of old when every society did indeed give exactly the same rates - and they all moved their rates by the same amount on the same day.
It worked much like the OPEC oil cartel

In was in the 1970's - and the result was indeed totally crap rates for everyone.
So those who couldn't be arsed got excactly the same as those who would have been prepared to search out the best....except they weren't any to search out.

IronWolf · 2 August 2011 at 7:24PM

Halifax have just started showing interest rates on the online banking

opinions4u · 2 August 2011 at 7:35PM

IronWolf wrote: »

Halifax have just started showing interest rates on the online banking

They had been doing this for years before they disappeared for a few months to support the merger of systems with Lloyds TSB.

Lloyds TSB also show rates online now as well as on statements.

The only other savings account I have at present is with Egg, who have made current rate much easier to find than it used to be.

SnowMan · 2 August 2011 at 8:23PM

ChiefGrasscutter wrote: »

I can remember the days of old when every society did indeed give exactly the same rates - and they all moved their rates by the same amount on the same day.
It worked much like the OPEC oil cartel

In was in the 1970's - and the result was indeed totally crap rates for everyone.
So those who couldn't be arsed got excactly the same as those who would have been prepared to search out the best....except they weren't any to search out.

Your argument seems to be that the simpler the savings market is, the less competitive it will be, my argument is the simpler the savings market the more competitive it will be (as there is no complexity for inefficient companies to hide behind)

Of course the argument isn't that different institutions should all offer the identical savings rate but that individual institutions should offer the same rates for very similar accounts. The single rate is within institutions not across institutions.

There would still be the chance for an institution to have a range of accounts just a much smaller range than at present. Competition would still mean that institutions would offer different rates than their competitors depending on their needs to attract funds and the efficiency of their operation. In the more transparent environment the less efficient companies might not be able to compete and would be taken over; that would not be a bad thing. At the moment it could be the more honest companies who do badly.

Yes of course it would mean lower rates for those who regularly check rates and switch currently. But the time saved in not having to check rates could be used by that individual to do other paid work.

Let us suppose that in order to get the best rates every man and woman in the country has to spend 1 hour per week checking rates and so on. Does that make sense. It is not really a productive thing when you look at the economy as a whole. Productive effort in the economy should be activity such as making things. Creating 1 hour per week of unecessary work for every person just to check rates does not make sense when a simpler system might mean only 30 minutes per week were required. An extra 30 minutes of free-time for every person.

The argument that those who make the most effort deserve the best rates has some substance. But what about those in society who do not have the capability (perhaps due to illness or disability) to make the right decisions. Should they be penalised?

MSE News: Government promises interest rates on savings statements

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