Banking: Savings Accounts

Lord Sassoon Excerpts

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.

[Lord Newby]

My Lords, in view of the success of the tax-free index-linked bond issue recently offered by National Savings & Investments, what plans do the Government have to keep this very popular product on the market in the future?

[Lord Sassoon]

I am grateful to my noble friend for drawing attention to the fact that the 48th series of fixed-interest and index-linked savings certificates was launched on 12 May. It is our intention to keep this series on sale for a sustained period. Of course, there is only a certain amount of availability within the targets we set for NS&I, but I am pleased that we are able to fill a gap in the savings market by putting particularly index-linked savings certificates on sale again. They are proving to be popular, but I am advised that there is still a supply of them available. Noble Lords who would like to invest in them do not need to rush out of the Chamber at this moment.

[Lord McFall of Alcluith]

My Lords, will the Minister take this opportunity to speak to the Independent Commission on Banking, the Vickers commission, and ask it to emphasise the concept of treating customers fairly so that savers feel, as the noble Baroness said in her supplementary question, that they are both getting a good deal and indeed can be seen to be getting that?

[Lord Sassoon]

My Lords, this will be the focus of some of our attention when the legislation for the new regulatory structure comes forward. Treating customers fairly in the broadest sense is a critical part of what the FSA has been working on over the past few years. As we look at the remit, particularly for the new Prudential Regulation Authority within the regulatory structure, it is important to make sure that a proper focus is placed on that strand of work going forward. No doubt your Lordships will soon have an opportunity to consider these matters.

[Lord Brooke of Sutton Mandeville]

My Lords, is there a good reason why the NS&I tranche, to which my noble friend referred, cannot be bought through post offices?

[Lord Sassoon]

My Lords, the NS&I is a commercial operation and it has to make sure that it delivers its products in the way that customers want to receive them. It distributes a significant number of products through the post office network, including premium bonds. Some products are just marketed while others are available over the counter. I understand that these days the most popular channel for NS&I’s products is over the internet, but there is a variety of ways of obtaining them. NS&I’s products are designed product by product to suit customer needs.

[Lord Brooke of Alverthorpe]

As we have a majority share in two major banks in the country, could the Minister not press them to implement the very interesting suggestions put forward by his noble colleague?

[Lord Sassoon]

My Lords, shareholdings in the banks in which the Government have a significant shareholding are managed on an arm’s-length basis through UKFI. We want a functioning and transparent market in which consumers are able to shop around. The OFT looked at this last year and indentified some areas of the market that needed working on in terms of switching times and some aspects of transparency. The banks are working on that. Very usefully prompted by my noble friend’s Question, I spoke to them today to confirm that their noses are being kept to the grindstone on this. That is important and is what we should require of them.