press release

• leaked Government plans for making MPPI policies compulsory potentially
• disastrous for consumers, argues Moneynet

BANKS and building societies are surreptitiously skimming off interest earned on so-called instant access accounts by limiting the number of free withdrawals allowed per year, according to online data comparison service Moneynet.co.uk.

Traditionally, an instant access savings account has been exactly that – pay in as much as you like, when you like and withdraw your money without any catches or loss of interest. Of course, interest rates were not the best but the advantage of being able to access your savings immediately without penalty was compensation.

But as growing numbers of bank and buildings societies explore every avenue that might help them protect profits, instant access accounts are at risk of becoming a thing of the past.

“Some banks are now limiting the number of penalty-free withdrawals allowed in one year from their instant access accounts,” said Moneynet chief executive Richard Brown.

“The onerous withdrawal conditions now being imposed by some banks will result in a huge boost for profits and a colossal loss of interest for customers.”

In some cases, providers are imposing a penalty of 30 days loss of interest on the amount withdrawn, which is deducted from the account balance. Worse still are those companies which are penalising their customers with 30 days loss of interest on the whole account balance for the month in which any withdrawals are made.

“These penalties can prove swingeing, particularly if you keep a healthy balance but make small withdrawals, said Brown. “For example, invest £5,000 and withdraw £100 and it could cost you around £20 in lost interest or 20% of the amount withdrawn. You expect this with a notice account when you don’t comply with the terms, but not with an instant access account.”

However, it is still possible to find accounts offering good rates of interest plus instant access to your money with no catches, particularly internet based accounts. Two of the best are offered by Birmingham Midshires and Citibank which carry an attractive rate of 5.20% for instant access with no penalties or conditions on withdrawals.

“Our advice is to shop around and look beyond the eye-catching headlines,” added Brown. “The facts are all freely available but unless you ask the question, you won’t discover the downside of a product until it affects you.”