Banking: Savings Accounts

Debate between Lord Sassoon and Baroness Stowell of Beeston

Monday 23rd May 2011 Lords Chamber

[Baroness Stowell of Beeston]

To ask Her Majesty’s Government what assessment they have made of the levels of interest set by banks on cash individual savings accounts as compared with other savings accounts.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the interest rates offered on savings accounts are a commercial decision for providers and, as such, vary. The Money Advice Service, which was set up by the Government, provides information and advice to encourage consumers to manage their finances proactively and to shop around for the best deal. The benefits of tax-free savings offered by cash ISAs allow the majority of savers to receive a tax advantage on all their cash savings.

[Baroness Stowell of Beeston]

My Lords, I thank my noble friend for his reply. Does he agree that the tax relief available on cash ISAs is offered by the Treasury as an advantage for savers, not a commercial opportunity for the banks? If he does agree, will he join me today in demanding two things from the banks? The first is that they should address immediately the discrepancy between the interest rates offered on some fixed-rate savings bonds and fixed-rate cash ISAs. The second is that they should give a guarantee to their customers that never again will they offer lower interest rates on fixed-rate cash ISAs than those they offer on fixed-rate savings bonds?

[Lord Sassoon]

My Lords, I am grateful to my noble friend for raising this important area of savings. We should remind ourselves that a total of 23 million people hold ISA accounts, and of those 15.5 million hold cash ISAs, so this very important part of the savings market is held by some 40 per cent of households. My noble friend’s Question prompted me to speak to the British Bankers’ Association today and I can confirm that the association is working on its own recommendations following on from those made last year by the Office of Fair Trading after it had looked at this area. For example, from early 2012, additional information about the interest rates being offered will be shown on all statements. Further, in line with the recommendation made by the OFT, the association’s members are working to significantly shorten or halve the time it takes to switch accounts. But the structure of interest rates being offered, which is increasingly transparent on the websites that are now available, is a matter of commercial competition. I would recommend all savers to take advantage of the tools that are out there in order to shop around.