Jeff Salway: Loyalty doesn't pay for bank customers

HIGH street giants offering poor rates on savings warns Jeff Salway

Many bank customers are finding their savings are underperforming as loyalty is repaid with low rates. Picture: Daniel Jedzura
Many bank customers are finding their savings are underperforming as loyalty is repaid with low rates. Picture: Daniel Jedzura

Savers taking advantage of exclusive “loyalty” rates are playing into the hands of the high street banks and losing out on better deals elsewhere, according to new research.

Recent cuts to the savings products marketed as exclusive deals for existing customers have left the rates on the accounts well below those on other offers.

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The accounts are presented to customers as rewarding them for their loyalty. The reality, according to Moneyfacts, is that banks and building societies are being rewarded for paying “shockingly low rates”.

Its research comes as the Financial Conduct Authority (FCA) prepares to publish a second six-monthly update highlighting the worst savings deals on the market, as part of a “sunlight remedy” designed to shame banks into improving their offers.

Bank of Scotland, Barclays, Clydesdale Bank, HSBC, Santander and TSB were among those paying less than the Bank of England base rate on easy access accounts.

The FCA also revealed in its cash savings market study last year that more than 80 per cent of cash in easy access accounts is held by people who have a current account with the same bank. Yet more than £160 billion is held in easy access accounts that pay 0.5 per cent or less, including a large proportion with rates of just 0.1 per cent.

Banks will be forced to offer customers prompt and efficient switches to their more generous accounts from next January, under new FCA rules. Introductory bonus rates will still be permitted, despite calls for them to be banned, but providers must do more to communicate rate changes to customers.

The shake-up is designed to enhance transparency and improve the treatment of long-term customers.

But there’s no sign yet of any improvement in the savings products being marketed towards them. The “exclusive” deals for existing customers are very rarely competitive in comparison to the rest of the market, according to Charlotte Nelson, finance expert at

“Loyalty accounts are a great way for providers to keep hold of their existing customers. They offer exclusive deals with better rates than their regular products, which make savers think that they are getting a good deal,” said Nelson.

But she added: “These products are only worthwhile if they can’t be beaten elsewhere. In reality these so-called loyalty deals are not a great option as they often don’t pay as much as other accounts on the open market.”

The interest rate on the best two-year fixed rate account available now (the 2.4 per cent rate from Al Rayan Bank) is 0.9 per cent above that on the best loyalty account version (the 1.5 per cent paid by Clydesdale Bank).

“This means that a saver investing £5,000 in the loyalty deal would be £45 a year worse off in terms of savings interest than if they had invested in the open market account,” said Nelson.

People often keep their savings and current accounts in the same place to make it easier to transfer money between the two. The price they pay for the reduced hassle tends to come in the form of “shockingly low interest rates”, said Nelson.

“As savings rates are currently low, it’s hard for savers to muster up the willpower to switch savings deals, but this lethargy is being used to providers’ advantage and is resulting in even more poor-paying deals,” she said. “Savers therefore need to vote with their feet and get past the misconception that ‘exclusive’ loyalty deals mean the best rate.”

Long-suffering cash savers have also seen the returns on individual savings accounts (Isas) fall again this month to new record lows. The average interest on both fixed and variable Isas has come down at a time of year when competition usually heats up, said Moneyfacts.

With the number of Isas available also falling sharply, it seems the new personal savings allowance - under which basic rate taxpayers can save up to £1,000 a year tax-free – is already having a detrimental impact on the cash Isa market.