David Prosser: From Iceland with love to savers
Saturday 14 October 2006
Britain's financial services industry is supposed to be competitive. So why is it that when it comes to one of the most basic products on offer, a good old-fashioned instant access savings account, Britons have to depend on foreign banks for a decent, straightforward deal?
Landsbanki, Iceland's oldest bank has this week launched into the UK for the first time, with an internet-based savings account paying 5.2 per cent a year. Not only is the rate on offer the best deal in its sector, it doesn't depend on gimmicks and tricks to get it to the top of the best-buy tables.
Better-known British savings providers, on the other hand, are desperate to get their hands on your money, but don't want to play fair. Alliance & Leicester's Direct Saver account, launched at the same time as Landsbanki's deal, is typical. It purports to pay a generous 5.25 per cent a year, but , you earn no interest in months when you make a withdrawal. In other words, it's effectively a one-year savings bond - and the best rates in that sector of the market are a full percentage point higher.
The other trick with which savings providers are obsessed is the introductory bonus interest offer. So, for example, Abbey's eSaver account, offers a decent looking headline rate of 4.85 per cent a year, but you only earn that much for six months. The introductory bonus interest of 0.5 per cent then falls off, and you start earning 4.35 per cent, more than a tenth less.
Landsbanki's launch into the UK is reminiscent of the splash made by the Dutch bank ING when it moved into the UK savings market in 2003. It quickly captured a market-leading share of new savings money, partly as the rate on offer was very good, but also because the deal hadno short-term interest bonuses or hidden small-print.
Like ING, Landsbanki will almost certainly take a little time to attract savers. In time, however, expect the Icelandic bank to give the likes of Abbey and A&L a bloody nose.
Good luck to it. Saving should be simple, but British providers seem to have an unerring dedication to sharp practices. They shouldn't be surprised when savers' cash starts disappearing off to a small island in the middle of the North Atlantic.
The Department for Trade & Industry's latest initiative on data sharing by credit card companies and other lenders is long overdue. It wants to repeal data protection laws that prevent lenders sharing information about how much their customers have borrowed and are repaying.
This lack of data sharing can prevent lenders spotting customers whose borrowing is getting dangerously out of control, even though they don't currently seem to be defaulting on the debt. Borrowers who are making at least the minimum repayments on all their accounts have been able to go on taking out new debts, despite having no chance of ever being able to repay the money in full.
Since the late Nineties, lenders have been entitled to share such information automatically. But up to 40 million accounts opened before then are still covered by old data protection laws. Many of these are current accounts with overdrafts, but other types of debt are also included.
That's a worrying black hole in the information that lenders have about credit applicants. People may not like their finances being scrutinised so closely, but if we want to encourage responsible lending, we have to give banks and credit card lenders the information they need to make more accurate assessments.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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