Low-rate bank is called to account

A little-known banking watchdog bared its teeth this week, ordering a high street bank to pay thousands of its customers more interest on their savings - the first such intervention of its kind.

Now more than 4,000 Bristol & West savers with money in discontinued accounts will get up to 31 times more interest than at present.

The move is clearly good news for these customers, but also for anyone who has money in a so-called "superseded" account - one no longer available to new customers or which is no longer promoted by the bank (usually because the rate of interest is so paltry).

The treatment of people with money in such accounts was criticised back in 1998. There was an outcry about banks launching accounts paying table-topping rates while cutting rates on old accounts and not alerting savers that they could get a better deal by switching.

The government launched an investigation into whether banks were treating customers fairly. As a result, the banking code of practice - to which the vast majority of banks and building societies subscribe - was tightened, with rules introduced on superseded accounts so customers could be confident they were not going to be ripped off.

This week, the Banking Code Standards Board (BCSB), which ensures that banks and building societies comply with the code, said it had reached agreement with Bristol & West to improve the interest rates on many of its superseded accounts.

In all, the savers affected have more than £15m stashed away but were being paid just 0.1% interest on all balances, even if they had more than £100,000 invested. Bristol & West has agreed to bring the accounts into line with its Premier Saver account, which pays between 0.1% and 3.15% depending on the balance.

The banking code states that if you have money in an account that's no longer available to new customers, banks must either keep the interest rate on that account at the same level as an account with similar features that is currently available, or it must switch you into an account with similar features. "This means that the interest rate on your account will always be at least as good as the interest rate on an account with similar features from the current range," says the code.

If the bank doesn't have an account with "similar features" then it must, within 30 days of your account becoming discontinued, tell you that this is the case, give you information about other accounts it offers, and allow you to switch into one of these if you wish without notice and without penalty.

Bristol & West fell foul of the rules because it decided to link the interest paid on its superseded accounts to its low-paying Select instant access account, which pays just 0.1% no matter how much you have invested. But most of the superseded accounts were originally notice accounts which, in most cases, were closed to new savers a decade or more ago. Almost certainly they would have paid a lot more than 0.1%.

No one actually complained about being shortchanged; the matter came to light when the BCSB was looking at Bristol & West's savings rates and was surprised at just how little it was paying some customers.

Seymour Fortescue, BCSB chief executive, says this week's announcement "shows we have got some teeth", and adds that it should act as a reminder to all banks and building societies that they must not ignore the requirements of the code.

Bristol & West says that when the accounts became obsolete, savers were invited to move to other accounts. But some chose to remain where they were. "It's not that we have not communicated with these customers," a spokeswoman says. The changes agreed this week affect "less than one-third of 1% of our customer base".

While the code clearly sets out the way banks must deal with superseded accounts -and this week's announcement is heartening in that it shows there are people out there monitoring what the banks are doing - the incident serves as a reminder of the importance of keeping an eye on the rates for savings, particularly in older accounts.

All banks and building societies must send out once a year a written summary of all the interest rates on all their accounts, and they will usu ally highlight those no longer available so people can see what rate they are getting and whether they'd be better-off moving to another account.

"Don't just throw it in the bin, have a look at it," says a spokesman for industry body the British Bankers' Association (BBA). "You might be quite happy with the account you've got but it is an opportunity to see what other products are on offer."

When reviewing your finances, it is probably a good time to check whether you have any money lying unclaimed in a bank or building society account that you have forgotten about or simply haven't used for years. Accounts where the bank and the customer have lost touch with each other are dubbed "dormant". Any money in a dormant account is your property and if you make a valid claim, will be paid to you in full, with interest (if it's an interest-bearing account).

If you want to reclaim funds in your dormant account, or think you have a legal claim on someone else's, a claim form is available from bank branches or can be downloaded from the BBA website www.bba.org.uk .