Banks in the UK are using account issue numbers to leave loyal savers earning interest rates as low as 0.75 per cent. Financial institutions regularly launch new versions of existing savings products under high headline rates while older versions of the exact same account drop to fractionally small returns.
Figures from broker Hargreaves Lansdown show that a third of savers have no idea what interest rate they are receiving on their money. The average rate across easy-access accounts currently on sale and those closed to new customers stands at just 1.6 per cent.
An easy-access savings account allows customers to deposit and withdraw cash at any time without penalty or advance notification. However, some UK providers are now surpassing 100 individual issues for a single easy-access account name, allowing them to segment account holders and alter terms between releases.
How account issue numbers split interest rates
Cynergy Bank recently launched issue 101 of its Online Easy Access Account paying an interest rate of 4.15 per cent, which includes a two-percentage-point temporary bonus for one year. However, customers holding issues 1 through 82 of that same account earn as little as 0.75 per cent.
Other versions of the Cynergy Bank account show similar rate gaps. Accounts in the issue 80s pay between 1.6 per cent and 1.9 per cent, whereas issue 100 pays 4.55 per cent including a one-year introductory bonus.
Cynergy Bank is a UK specialist bank operating primarily online. The practice of creating new issue numbers allows financial institutions to advertise high interest rates to new customers while older deposits remain trapped in low-paying backwater accounts.
The Post Office is using similar structures on its savings products. Post Office Online Saver issue 89 pays a headline rate of 4.31 per cent, which includes a 12-month bonus. In contrast, customers remaining in Post Office Online Saver issues 1 to 80 receive an interest rate of just 0.9 per cent.
Discrepancies in cash ISA interest returns
The gap in returns extends across tax-free savings products as well as standard deposit accounts. A Cash ISA is a UK tax-free individual savings account that enables UK residents to earn interest on savings up to an annual statutory limit without paying income tax on the returns.
Post Office Online ISA Easy Access pays 4.16 per cent on its current issue 52, supported by a 3.26 percentage point introductory bonus lasting one year. However, savers holding issues 1 to 47 of the Post Office Online ISA receive 0.9 per cent.
Charter Savings Bank, a specialist UK retail bank, displays similar rate disparities. Charter Savings Bank launched issue 82 of its Cash ISA paying 4.26 per cent, while older issues of the account pay as little as 3.1 per cent. On its standard easy-access products, Charter Savings Easy Access Issue 78 pays 4.21 per cent, while some older issues pay 3.15 per cent.
Tesco Bank, the retail banking arm of supermarket chain Tesco, offers the Tesco Instant Access Cash ISA paying 4.2 per cent. However, 3.15 percentage points of that headline figure consists of an introductory bonus that expires after 12 months.
Impact of inflation on stagnant savings
Latest economic figures show that UK consumer price inflation is running at 2.9 per cent. Inflation measures the rate at which the prices of goods and services increase over time, reducing the purchasing power of money held in cash.
Savers earning an interest rate below 2.9 per cent suffer real-terms erosion of their capital. Money sitting in older easy-access account issues paying 0.75 per cent or 0.9 per cent loses value over time as cash growth fails to keep pace with rising living costs.
Banks and building societies rely on customer inertia, hoping account holders will not notice when introductory bonuses expire or when money is shifted into legacy tranches. High headline rates are published primarily to win new business rather than reward long-term account loyalty.
Protecting savings and finding higher yields
Savers can avoid low returns by inspecting account statements and verifying the specific issue number attached to their savings account. Making a diary note when a temporary introductory bonus expires allows customers to move funds before returns drop.
Moving money to top-performing accounts listed on independent best-buy tables helps maximize interest earnings. Independent savings tables compiled daily by savings expert Sylvia Morris and the This is Money team track top-paying accounts across UK providers.
Deposits held with authorized UK banks and building societies are protected up to statutory limits by the Financial Services Compensation Scheme, known as the FSCS. The scheme safeguards up to £85,000 per person per institution if a bank fails.
Checking headline rate terms, monitoring temporary bonus expiry dates, and signing up for free email savings alerts allows savers to maintain high returns on their cash balances.
