Miserly interest rates get the bird

Loyal savers are still being short-changed by major high street banks and building societies, some of which are getting round the code of practice designed to protect customers, Consumers' Association magazine Which? claimed this week.

It turned the spotlight on several leading institutions paying paltry rates to instant access-style account-holders, among them Abbey National, Alliance & Leicester, Northern Rock and the Woolwich.

Abbey National's Instant Saver account pays just 0.5% gross interest on balances of £500, or 1% gross if you have £2,500 stashed away. However, another of its recently launched easy-access accounts, Flexible Saver, pays 4% gross (3% gross if branches are used).

Alliance & Leicester's Instant Access account currently pays 1% gross on £500 and 1.15% gross on £2,500, while its newer EasySaver instant-access account pays 5.3% gross. The accounts work in a slightly different way but that is still a huge differential.

Northern Rock is also highlighted - its Instant Access account pays 0.15% gross on £1, and a tiny 0.55% gross on £10,000, though it will award you a 0.5% interest bonus if you make no withdrawals in a year. Woolwich pays just 0.5% gross on its Prime Gold instant-access account.

Compare these with Nationwide's instant-access InvestDirect account, which pays 5.3% gross on balances of between £1 and £10,000. It's a postal account, but a cash card is available. Standard Life Bank's no-notice Direct Access account, operated by phone, pays from 5.8% gross on £1.

Which? claims that a few of the accounts paying a pittance have effectively been discontinued and that the institutions concerned are "getting round" the banking code which is supposed to ensure consumers don't lose out. There are special rules in the banking industry's code of practice relating to so-called "superseded" accounts - those no longer available to new customers or which are no longer promoted.

Back in 1998 the industry came under fire over the way people with money in these 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 up and 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 currently 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.

Last summer 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, even if they had £100,000-plus invested. It now looks likely that a number of other banks will be ordered to do the same because the Banking Code Standards Board, the watchdog that checks banks are obeying the code, has been carrying out its own investigation into superseded accounts.

The BCSB is currently talking to several institutions about its findings and revealed this week it may take disciplinary action against some. This would involve naming and shaming.

Which? argues that the banking code needs to be tightened up again. The magazine claims Abbey National's Instant Saver and Woolwich's Prime Gold are not being actively marketed and so should have been classed as superseded, which arguably would have meant people with money in these would have got a better deal.

But the two banks reject the claims. Abbey says it is "whiter than white" as regards superseded accounts and always follows the rules laid down in the code. The Woolwich says Prime Gold is not superseded or obselete, is still available for sale and is the only passbook account it offers.

If you're looking for more information about savings rates, a new website called Moneyadder.com may be worth a look. Developed by two former senior bankers, Moneyadder says it will provide savers with up-to-date information on the best accounts in the market. It is even offering to email you if the rate changes on your account or a new product is launched that may offer a better deal.