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• technical notes
• complaints that the interest rate on a savings account is too low
  • interest rates
  • advice
  • changing the rate
  • telling the customer
  • unfairness

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complaints that the interest rate on a savings account is too low

This briefing deals with cases where a customer complains to us that the interest rate on a savings or deposit account is too low.

This is intended to clarify our current general approach to such cases. It may help financial firms (such as banks or building societies) that wish to settle with people who have complained to them.

We are required to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case. We may decide that fairness requires a different approach in a particular case. Our current approach may develop in the light of circumstances disclosed by further cases we receive.

We take into account the law, the principles of the Banking Code and good industry practice. We do not write the Banking Code and we have no power to make rules about how financial services are provided.

interest rates

What will the Financial Ombudsman Service consider?

We will consider whether the firm:

• gave the customer wrong advice
• had power to vary the rate
• made available sufficient information about what the rate was
• treated the customer unfairly in some other relevant way.

What won’t the Financial Ombudsman Service consider?

We have no power to set interest rates. We do not interfere in the market by comparing the interest rate paid by one firm against the interest rate paid by another firm.

General interest rates are affected by the Bank of England base rate, by competitive market forces and by the need for firms to generate whatever margin is required to maintain their business.

advice

The firm is not required to volunteer advice

If a firm actually gives advice, it is liable if the advice is wrong. But it is not required to offer or give advice. In particular, a firm is not usually required to tell a customer when it would be in the customer’s interests to switch to another account.

Whose job is it to keep an eye on the account?

Customers should keep a careful eye on the rate of interest they are getting, what they could get elsewhere, and movements in Bank of England base rate (which are widely reported). And they should watch out for interest-rate information in anything the firm sends them.

changing the rate

Has the firm got power to change the rate?

We can consider whether the account terms include power to change the interest rate. It is very likely that they will do. But this may well be subject to conditions, and we can consider whether those conditions have been met.

Unfair Terms in Consumer Contracts Regulations

For accounts opened from 1 July 1995, we take into account whether the account terms used to change the interest rate complied with the Unfair Terms in Consumer Contracts Regulations.

These involve assessing the fairness and potential effect of the account terms themselves, in the circumstances when the account was opened, without the benefit of hindsight about how they were actually used later.

What did the firm promise?

If the customer shows us promises in the marketing literature that he/she received, we can consider whether those promises became part of the account terms or induced the customer to open the account on a false basis.

telling the customer

The Banking Code

The Banking Code contains requirements about how firms keep customers informed of interest rates. The first edition came into effect on 16 March 1992. Later editions change the requirements. So the position is different for different periods.

Notice when the rate is changed

The Code does not usually require the firm to send the customer individual notice of an interest rate change.

From 16 March 1992 to 30 June 1997, the Banking Code says it is enough if the firm puts notices in its branches or the press or on statements.

From 1 July 1997 to 30 March 1999, the Code says it is enough if the firm puts notices in its branches and the press. [But ombudsman decisions have said that is not sufficient for postal accounts.]

From 31 March 1999, the Code requires the firm to send the customer individual notice of the interest rate reduction on postal accounts which cannot be operated at a branch. But for ordinary accounts which can be operated at a branch, the Code still says it is enough if the firm puts notices in its branches and in the press.

Yearly list of rates

From 1 July 1997, if the firm only puts notices of interest rate changes in its branches and in the press, it should send the customer a list of its interest rates once a year – unless:

• before 31 March 1999, the account has a passbook
• from 31 March 1999 to 31 December 2000, a passbook account has less than £100 in it
• from 1 January 2001 to 28 February 2003, the account has less than £100 in it
• from 1 March 2003, the account has less than £500 in it.

‘Superseded’ accounts

From 31 March 1999 the Banking Code introduced new rules about accounts that became ‘superseded’ (before or after 31 March 1999). For events from 1 March 2003 these rules are replaced by rules about ‘downgraded’ accounts – explained below.

‘Superseded’ accounts are ones closed to new customers or which the firm no longer promotes. These rules provide:

• The interest rate on the superseded account has to be kept up to the rate on an account in the firm’s current range with similar features – relating to, for example, notice periods, types of withdrawals, number of free withdrawals, how the account is accessed.
• If the firm has no account with similar features, it should write to the customer within 30 days to say that the account is superseded – offering to help the customer switch to another of the firm’s own accounts, and waiving any notice period or charge.

‘Downgraded’ accounts

For events from 1 March 2003, there are special rules about ‘downgraded’ accounts with £250 or more in them.

Broadly, an account is treated as ‘downgraded’ where the interest rate is reduced by 0.5% or more within one year (either at one go or in a series of steps) compared to Bank of England base rate.

This means an account is treated as ‘downgraded’ if, for example:

• base rate is unchanged and the account’s interest rate has gone down by 0.5%
• base rate has gone up by 0.5% and the account’s interest rate is unchanged.

If an account is downgraded, the firm should contact the customer within 30 days, and:

• say the account is downgraded
• give details of the firm’s other accounts and offer help in switching
• say that the customer can withdraw the money instead
• waive for at least 60 days any notice or penalty for switching or withdrawal.

Unfair Terms in Consumer Contracts Regulations

For accounts opened from 1 July 1995, the Unfair Terms in Consumer Contracts Regulations apply. We take into account any guidance on these from the Office of Fair Trading or Financial Services Authority that was current at the time.

In some circumstances, the Regulations may require the firm to send the customer individual notice of the rate change and allow the customer to close the account freely – even though the Banking Code does not require this.

And terms that would allow the firm to take unfair advantage of locked-in customers may well offend the Regulations.

unfairness

The law says we must decide cases on the basis of what we consider to be fair and reasonable in all the circumstances of the case – and we must take into account, where relevant:

• law and regulations
• regulators’ rules, guidance and standards
• codes of practice
• what we consider to have been good industry practice at the relevant time.

We might decide that the circumstances of a particular case were so special that fairness required the firm to do more than just follow the Banking Code. But if the firm has followed the Banking Code, we are unlikely to award compensation for the level of interest in any of the following cases:

• Where different interest rates broadly reflect the different costs associated with different delivery channels – internet accounts, phone accounts, postal accounts, branch-based accounts, branch-based accounts with passbooks.
• Where the account was instant-access without penalty and interest rate details were reasonably accessible to the customer – so the customer could check the interest rate, and withdraw the money freely and immediately if dissatisfied with the rate.
• Where the firm gave the customer personal notification of an interest-rate change, waiving any notice period and penalty for a reasonable time – so the customer could withdraw the money freely and immediately if dissatisfied with the new rate.
• Where the Banking Code’s requirements were likely to provide sufficient protection in the circumstances, and the firm did not take unfair advantage of withdrawal constraints or the customer’s lack of information.

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