Savers to be informed of rate changes

The new European rules will take effect on November 1, and specify that all banks and building societies are required to provide advance warning to customers of reductions to rates paid on bank accounts.

Savings accounts providers will also have to communicate details of rate changes to account-holders when a bonus period comes to an end. This is likely to affect the majority of savers, as most top-paying variable rate accounts now offer introductory bonus rates, which generally revert back to an uncompetitive rate after this period ends.

Account providers have been criticised in the past as many savers are unaware that their account no-longer pays a competitive rate.

The new law follows months of rate cuts to accounts made by providers, often without informing customers, despite the fact that the Bank of England base rate has remained unchanged at its record low of 0.5%.

Two of these - Halifax and Leeds Building Society, recently trimmed rates on a range of their accounts by up to a quarter of a percentage point.

a spokeswoman for the Financial Services Authority (FSA), which will oversee the rules, said: "The changes are aimed at ensuring customers know what is happening to their accounts,"

"The rationale is they are told ahead of time so they can move if they want to."

The new requirements will be rolled out in two stages.

The first stage will come into effect from November, ruling that banks and societies are to give customers at least two months’ notice before making any reduction to rates on most instant access savings accounts and current accounts.

Letters, e-mails or texts must be sent out by providers (depending on the chosen communication method when the account was set up), informing customers of an upcoming rate cut.

The second stage will become effective from May 2010, and will focus on a new notification regime for notice and other instant access accounts, including individual savings accounts (Isas).

These Banking Conduct of Business (BCOB) rules are still to be finalised but are also expected to provide savers with advance notice of cuts made to interest rates.

Experts said that the proposed rules would be a major improvement on existing notification rules.

Some providers already inform savers of rate cuts, but under the industry’s current Banking Code they are not required to do so.