Existing savers often lose out when banks try to woo new custom. Both the Ombudsman and Treasury can help.

Paul Slade reports

There is nothing as infuriating as being treated like a second- class citizen. Yet millions of people suffer this fate every year. They are victims of a cynical calculation by the UK's high street institutions that their custom is less important than that of those who have yet to be signed up.

Big banks - and some building societies - offer high rates of interest to pull in new customers because they do not want to lose market share to new competitors such as Sainsbury, Tesco or Safeway - where savings earn 6.5 per cent gross or more from the first pounds l onwards, and is always available.

Offering the same high rates to all their existing savers would eat into profits, so older customers are often left in the dark with a far lower interest rate. Moreover, according to leaked internal memos from institutions such as Lloyds TSB and Bradford & Bingley, staff are apparently required not to inform their customers of higher-paying accounts.

The last thing banks and building societies want is for their existing savers to demand the same returns. But if a pledge by Helen Liddell, the Treasury minister, is to be believed, the days of such shabby treatment for existing bank customers may be numbered.

Mrs Liddell announced last week that the Treasury is to conduct an investigation into the way banks operate and threatened to replace the existing system of voluntary regulation with statutory controls.

The MP David Davis, whose views sparked the Treasury inquiry, calls the banks' behaviour "systematic and deliberate".

The Treasury's inquiry comes as the Consumers' Association mounts its own survey into savings accounts, to be published in the campaign group's monthly magazine Which? in the autumn. Neil Walkling, a researcher with the Consumers' Association says: "As soon as a new account is launched with a much better rate, the bank should write to all the customers who may be expected to want to switch over." Instead, the banks rely mostly on posters in branches and ads on pages like these.

If you think your own bank has stranded you in a poorly paying account, get someone there to talk you through the other options available. Make sure you understand the main restrictions applying on each account before you take the plunge.

If you decide to switch, but the bank demands that you pay a penalty before taking the money out of your old account, point out that the Banking Ombudsman may a dim view of this.

The deputy Banking Ombudsman, Chris Eadie, says: "If we think a bank has been unfair in the way it has handled a lock-in to a particular interest rate, then we will decide against the bank - and there have been cases where we have done that."

It is the Ombudsman's job to resolve disputes when the bank and the customer reach deadlock. The Ombudsman received 8,818 complaints in the year to 30 September, 1997. About half of the 674 cases which went on to a full investigation were resolved in favour of the customer.

It would be useful to know just which banks he has found wanting, so we could all avoid them, but this is information the Ombudsman refuses to provide.

Mr Eadie says: "I think it might seem unfair for a bank to get caught out for one particular bad thing when they might be providing quite a good service to customers in other ways." Mr Eadie says his office has already received "a very considerable number of complaints" against Northern Rock, which angered savers at the end of last month.

The bank has collapsed its postal range from 11 accounts to just three. This left many savers with a lower interest rate than they had been receiving before, albeit with a shorter notice period to match. The changes took effect on 23 April.

Ironically, Northern Rock did write to individual savers to notify them of the changes. But many of the letters, posted on 17 April, had still not arrived when the changes came in, leaving angry accountholders to read about their new accounts in the press.

Northern Rock's spokesman Ron Stout says: "That clearly wasn't our intention. That's an area that we do regret, and we'll look into that."

Northern Rock savers who do not like the new rates, and want to take their money elsewhere, will have to serve the account's notice period or sacrifice up to 60 days' interest.