Lack of interest in stranded savers: Building societies may be saving pounds 800m a year in interest by failing to alert investors to obsolete accounts

Click to follow
The Independent Online
CHRIS and Margaret Norton, of Weston-super-Mare, have found that building societies are still far from consistent in dealing with savers whose money is in obsolete accounts.

At her local branch of the Bristol & West, Mrs Norton recently discovered her Hilife account had earned only pounds 9.68 interest on a pounds 1,841 balance. Staff 'virtually fell about laughing' when she complained, telling her she 'ought to have changed the account', which was now only paying 0.25 per cent interest.

The Hilife account was only on offer for about a year from 1990, and Mrs Norton should have been told it was closed when she paid in a cheque in April. It now earns the same rates as those on the society's standard instant access account. As an investor who has not touched her cash in four years, Mrs Norton might have been better off from the start in a higher-paying notice account. Rates of around 3.9 per cent are available from leading societies on 90-day accounts.

Mrs Norton's experience with the Bristol & West was in sharp contrast to her mother's with the National & Provincial, which wrote to her about an old account and later transferred the money automatically into a new account offering a better rate of interest.

N & P used to have 40 obsolete accounts. Now, after a two-year exercise to alert and transfer investors, it has none. Around 1.5 million investors were affected, and 600,000 who failed to respond to letters were moved automatically, resulting in an extra interest bill of pounds 15m a year for the society.

Estimates from the N & P suggest that throughout the UK, 19 million building society account-holders with balances totalling as much as pounds 20bn may be losing out, and the societies concerned are saving interest of pounds 800m a year, or about pounds 40 per account. These are not just small, forgotten accounts. N & P found that some investors had balances of as much as pounds 10,000 in accounts that had been superseded.

The issue of closing accounts came to the fore in 1990, when the Building Societies Ombudsman received an enormous number of complaints about a new range of accounts launched by the then Nationwide Anglia. After adjudicating on these complaints, the Ombudsman came to the view that 'investors must be vigilant about their investments', but societies had a duty to make all the relevant information 'reasonably accessible'.

Nevertheless, the Ombudsman has welcomed the move by N & P to transfer obsolete accounts automatically if no response is received from the investor.

The Britannia and, more recently, the Leeds Permanent have also made automatic transfers. Over two years Britannia has switched 60,000 savers, with a guarantee that terms and conditions will remain the same in the new account. The Leeds has converted balances of pounds 450m in a million accounts at an estimated yearly interest cost of pounds 6m.

Recently the Cheltenham & Gloucester automatically transferred pounds 55m belonging to 6,500 investors out of obsolete accounts.

In an increasingly competitive market it has been the medium-size societies that have taken the initiative on transfers. The big societies stand out as resistant to the idea of transferring, or even writing individually to investors with closed accounts.

They argue that interest rates are notified regularly through press advertising and in branches. All account-holders should receive an annual statement with an interest rate sheet, so they can compare accounts. If an investor goes to a branch, staff should be primed to bring the situation to his or her attention.

A combination of these measures is regarded as 'reasonable access' by the Ombudsman, although this clearly still fails to reach a large number of investors. Research by the Leeds has shown that four in five investors do not know what interest rate they are getting.

Abbey National has transferred savers in the past: 700 children were moved from the Instant Access account to an Action Saver account with a number of special children's features. 'We want to hang on to kids as savers,' an Abbey spokesman said.

Someone with pounds 5,000 in the Woolwich's old Prime Account would now be earning 2.5 per cent gross interest. Prime Gold, the new version, pays 3.5 per cent on the same balance. According to a spokesman from the Woolwich: 'We want to encourage people to be in current products, and they are priced accordingly.'

The Nationwide has written to all members twice in the past two years asking them to check that their accounts are offering the best available rate. It also offers transfers to new accounts on terms at least as good as those in the old accounts.

It is inappropriate to expect these long-term customers to go on funding others, argues Britannia's Gerald Gregory. He expects automatic transfers to become standard. Societies that continue to resist will have 'a lot of explaining to do', he says.

(Photograph omitted)