Why banks close accounts
It’s tough out there for the banks and the building societies, not that I have a lot of sympathy for their self inflicted troubles, and there are increasing signs that they are resorting to underhand measures to shore up their balance sheets. In the last few days I have been called by several people concerned about changes being made by a number of banks and building societies to their savings accounts. In effect each has received a letter from their bank or building society telling them that the interest rate on their account is being reduced, and in some cases reduced by more than 80%.
The wording used by these institutions is somewhat interesting, take the following from Birmingham Midshires: Regardless of the balance in your account your rate will be fixed at 1.00% gross per annum, so no matter what happens to the bank of England base rate in the future your rate will remain the same. It then goes on to show that the last base rate move was down, from 5.25% to 5.00% per annum.
They write as though they are doing their savers a favour, reducing the interest rate from 3.66% to 1.00% - only now it is fixed in case the Bank of England base rate plummets from 5.00% to under 1%.
And the Nationwide are no better, closing certain accounts and reducing the interest rate to a paltry 0.3% (according to the letter received by one of our clients). This is from the building society that has based an entire advertising campaign on treating its customers fairly, no big hook rates to lure in new savers whilst excluding existing savers. In Nationwide’s case they simply reduce the interest rates for all savers, new and old.
So why are they doing this? Inertia perhaps? If there is a large slug of money that will not move from the old account to a better paying account, then the bank or building society suddenly finds itself sat on several millions where it only need pay a very low rate of interest, thus helping to boost profits. If it can do this enough times to enough accounts who knows exactly how much money will be stuck in accounts that pay a minimal amount of interest.
If you want to get an idea of just how frequently banks and building societies change accounts, take a look at their websites and look for closed accounts. This appears to be a business within a business, and must be quite lucrative overall otherwise why would they do it?
To be fair, many Building Societies have accounts which they have inherited when they have merged and so these accounts will be discontinued. The discontinued rates are also not always worse than the current ones, especially so in the case of Portman Building Society accounts when compared with Nationwide!
Comment by Caz — July 4, 2008 @ 9:55 am
Caz, I take your point, and yes there are a number of societies that have merged in the past and rationalised their accounts. I have noticed however that there is a rash of account closures occuring in the current climate. Interestingly there is no corresponding merger activity. Regarding the comments I made about Nationwide’s account closures, these were for accounts that have always been Nationwide accounts, and not those from the Portman.
Comment by Dennis Hall — July 4, 2008 @ 2:09 pm