JAMES CONEY: Banks squeezing savers and hitting homeowners

JAMES CONEY: Banks squeezing savers and hitting homeowners

By James Coney

PUBLISHED: 18:07 EST, 29 May 2012 | UPDATED: 12:09 EST, 30 May 2012

Slowly but surely banks are sneakily boosting their bottom line by squeezing savers while hitting homeowners with hike after hike in mortgage rates.

It almost seems impossible that savers can get a worse deal than they have been for the past three years â€" but mark my words, we’re heading that way.

Since January 1, mortgage rates on the best deals have increased by as much as 0.8 per cent, adding £792 a year to the cost of a loan.

Money to burn: Slowly but surely banks are sneakily boosting their bottom line by squeezing savers while hitting homeowners with hike after hike in mortgage rates

Meanwhile, the rates on the best savings deals have been cut by as much as 0.5 per cent â€" stripping hundreds of pounds of interest from desperate pensioners.

All this has happened while the Bank of England base rate has remained at its historic low of 0.5 per cent, where it is predicted to remain for as many as four more years.

Regular readers of these pages will by now, of course, know what an utterly pointless indicator the Bank of England rate seems to be for ordinary bank customers. It bears no relation whatsoever to what interest you earn or pay on the High Street

And the interest chops are happening everywhere.

Lloyds Banking Group has lowered the interest on its one, two, three, four and five-year fixed bonds from Halifax, and its one and two-year deals from CG by as much as 0.5 percentage points.

NatWest has also cut its leading deals on bonds and on fixed-rate Isas, while Nationwide now pays 2.75 per cent on its 14-month fixed-rate Isa, down from 3 per cent at the end of last year.

And where banks haven’t cut, it’s because their rates weren’t any good in the first place.

On mortgages, of the best one, two, and five-year fixed-rate and tracker deals from the top seven lenders, only one rate has not increased since the start of the year.

In the worst cases, repayments on a five-year deal for a typical borrower are £3,960 greater.

Rates for first-time buyers have also  crept up, adding £744 a year to  repayments.

It could be the reason for the shift is that banks already have enough capital on their balance sheets and simply don’t need extra at the moment. For that reason, there is none of the competition we saw last year to push up savings rates.

And it’s equally possible that EU funding requirements, red tape from new rules over here and fears of a eurozone collapse have all led to the cost of loans rising.

But for most homeowners this matters not a jot.

All they care about is that this rate robbery is money that is disappearing fast from their pockets. Banks know that if they are to encourage savers to stay, they must work extra hard to fool customers about the rate they are getting.

And that’s why we are seeing increasing numbers of savings deals riddled with small print, exclusions and nasty catches designed to make accounts seem more attractive than they really are.

Unfair Aviva and the with-profits trap

At Money Mail we see a lot of cases that have been dealt with by the Financial Ombudsman Service â€" and it’s rare I find myself disagreeing with  them.

But I believe it has made a glaring error in the complaint made to it by Ken Morton. Mr Morton took out a with-profits bond in 2000 and was told he could face exit penalties if he wanted to get out.

But in 2005 he was told, in writing by his insurer Aviva, he could safely cash in his with-profits policy for free in 2010. He patiently waited five years, before cashing in his bond. Mr Morton promptly lost £4,317.

The ombudsman decided Mr Morton’s complaint would not be upheld because the bond was sold with an exit penalty, and besides, he would have always faced a likely fine to leave the fund.

Aviva admits its mistake in falsely telling Mr Morton he could get out for free.

It even offered to allow him to reinvest the money. But this offer was too late: the money was already spent.

Mr Morton behaved as any rational consumer would do. He acted in good faith on the most recent information he had received from his insurer. That’s all you can expect.

Aviva’s mistake has cost him £4,317. A small fortune for him, but just two hours’ work for Aviva’s chief executive, who makes £5.2 million a year.

Banks and insurers are desperate to shift increasing amounts of responsibility for financial decisions on to consumers â€" it’s one way of reducing their own accountability for some of the shocking savings and investment plans we end up with.

And in some ways, I agree. Many homeowners who borrowed recklessly and were complicit in taking mortgages they could not afford have never been held to account for these decisions.

But if banks and insurers want the consumer to be held responsible for their choices, they can expect this to happen only if the information we receive is accurate and fair.

And that also means an end to the misleading adverts and marketing tricks designed to trap us.

Price of loyalty cards

I don’t like debt, but I love loyalty cards and cashback credit cards.

Once you get into the habit of using these cards, you can soon rack up pounds and points.

Of course, banks and retailers don’t do this for free.

The trade-off for the money and perks you are earning is the data these schemes collect about you.

The stores you sign up with get to learn what you spend, what you’re buying and where you shop.

It’s truly invasive. They can tell when you’ve had a baby, if you’ve moved house or are doing renovations â€" and hit you with adverts and offers to persuade you to part with even more cash.

There is a dirty trade in your details, and if you’re not comfortable with it then loyalty cards are not for you.

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