I have some savings for Uni in a 3% interest bank account - the best I can get on that amount of money.

However, today (12th of May) I received a letter, from the bank, saying that the interest rate would be decreasing to 2.5% as of 1st June (21 days away). The letter was dated 30th April.

I now want to move my money because that bank account has some restrictions on money access (the interest decreases if I remove any) and I can get 2.5% elsewhere.

Unfortunately, I have 5 exams for my AS Levels before that date and another 6 after. I'd rather not have to run around town trying to transfer money right now.

To that extent, is the bank allowed to do this? 21 days seems very short notice to tell me this information. Can I do anything?

  • 1
    If I was you I'd concentrate on my exams and not let this irritation develop into a distraction. Even after your exams, you will be wasting your time trying to get compensation because anyone you speak to will not have the authority to do anything about it. It's the world we live in. – user41790 May 13 '16 at 1:16
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    Without knowing anything about British law, I can say pretty confidently that yes, they are allowed to do this. Reasoning: if it were illegal they'd know it, since their policies are surely reviewed by their lawyers, and they'd know there's no way they would get away with it. Your contract with the bank (the forms you signed when you opened the account) probably state the terms under which they can change the interest rate. I'd guess that UK banking regulations are the only reason you're getting 21 days notice instead of 0. – Nate Eldredge May 13 '16 at 2:27
  • Usually, in order to "lock in" a higher interest rate for any significant length of time, you need some sort of time deposit (seems like the UK name might be "fixed rate bond"?). The tradeoff is that you forfeit some or all of the interest if you withdraw early. – Nate Eldredge May 13 '16 at 2:34
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    Also, have you worked out how much money is actually at stake here? Unless you have quite a large sum on deposit, a difference of 0.5% interest (per year) for a month or two is probably not enough to be worth taking any significant trouble over. – Nate Eldredge May 13 '16 at 2:41
  • You state in a comment to Dheer's answer that the balance is "well over £500". Ignoring taxes, at 3.0% per year, £500 earns £15/year in interest (because £500 * 0.03 = £15). Reducing to 2.5% means £500 now earns £12.50/year. In other words, the reduction is about £2.50/year or £0.21/month. Now add taxes on that interest amount, if applicable. If taxes are, say, 20%, you will now be earning £0.83/month instead of £1.00/month. I'll leave it to you to decide whether a difference of £0.15-£0.20 per month is worth making a significant fuss over. How long until you break even on the phone call cost? – a CVn May 14 '16 at 15:51

Yes there is regulation in place see here

Quote from the page

Instant-access savings accounts
As with current accounts, if a bank is to reduce the interest rate on an instant-access savings account it generally has to give two months’ notice.

Other savings accounts
To change the interest rate on other savings accounts, such as those with a notice period and cash ISAs, a bank should give you reasonable notice that it intends to make a ‘material reduction’.

A reduction is consider to be ‘material’ if you have £500 or more in your account and the interest rate falls by more than 0.25% at one time or by 0.5% or more over 12 months.

This should give you enough time to move your money to another account, without penalty, if you are not happy with the reduced rate.

  • Is 21 days enough time? Can personal circumstance be taken into consideration? I have well over £500 in there. I (personally) think that 21 days is quite tight - but maybe all they need is say a week. – Tim May 13 '16 at 12:49
  • Well you can argue that it is not reasonable it depends. – Dheer May 13 '16 at 13:50
  • I guess I'll phone tonight and see what they say. – Tim May 13 '16 at 13:51

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