Failing to look after your interests

Thousands of Alliance & Leicester savers will receive "windfalls" averaging more than £250 apiece after a banking watchdog this week ruled they were not being paid enough interest.

The high street bank has agreed to pay a total of £1.4m in extra interest to 5,400 people with money in its Bonus 90 account in order to avoid being disciplined by the Banking Code Standards Board.

A&L is the latest institution to invoke the ire of this watchdog which, though relatively little known, is not afraid to bite the big banks. This week's action is part of an industry-wide investigation by the BCSB into so-called "superseded" accounts - those no longer available to new customers or which are no longer promoted.

There are special rules relating to these accounts in the banking code of practice to which all the main banks and building societies subscribe. These rules are meant to ensure that people with money in discontinued accounts don't lose out.

A&L's Bonus 90 account, which was a 90-day notice account, was closed to new customers in 1996. The notice period was removed and since then the interest rate on the account has been based on A&L's instant access account, which means it was paying just 0.5% on balances up to £4,999 and 1.25% on £25,000-plus.

When it discovered this, the BCSB wasn't too happy, particularly bearing in mind that between them these people have a whopping £62m stashed away in Bonus 90 - an average of £11,400 each. It asked the bank to take action and so the Bonus 90 account-holders have now been upgraded to A&L's higher-paying Notice account, which pays a rate of between 1.75% and 3.25%.

These people have also received an additional lump sum interest payment because the bank has agreed to backdate the change to September 1 last year.

An A&L spokeswoman says all those customers affected have already been switched to a Notice account. However, as this is one where 30 days' notice is required to get at your cash, they are being given the chance to switch into another account if they wish to do so. Some of them may feel an instant access-style account is more appropriate for their needs.

Four months ago Chelsea building society was ordered to pay 12,700 of its savers extra interest after the BCSB said it had broken the rules on superseded accounts. The breach involved a number of accounts, including Option 90. And last year Bristol & West was ordered to pay more interest to 4,000 savers with money in superseded accounts after it was discovered they were being paid just 0.1% on all balances.

In 1998 the industry came under fire over the way people with money in superseded accounts were being treated. There was an outcry about some banks launching new accounts paying table-topping rates while cutting rates on old accounts and not alerting savers that they could get a better deal by switching.

In response the banking code was tightened. It now states that if you have money in an account that's no longer available to new customers, or isn't being advertised, the bank must either keep the rate on that account at the same level as an account with similar features that is available, or it must switch you into an account with similar features. If the bank doesn't have a similar account it must help you to switch into another of its products.