The good and the bad of saving adverts

Posted on 26 August 2007 by Ray Boulger

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An article on savings accounts by Steve Lodge in last weekend’s FT included a comment from me that with Libor rates, i.e. the rate at which prime banks borrow from each other, having shot up this month, as a result of the credit crunch, to about 0.9% above Bank Rate for 3 month Libor, and nearly as high for 1 month Libor, it would make sense for some banks and building societies to tap savers for funds by offering a market leading internet rate, especially if the money raised was to be used to fund mortgages, as most new variable rate mortgages these days are based on Rank Rate rather than Libor or the lender’s Standard Variable Rate.

We have seen on many occasions over the last few years that savers have billions of pounds ready to chase the best instant access rate. Equally, as ING have discovered, it is just as easy to see billions of pounds disappear to another hot rate when you stop offering a competitive rate. In fact ING have gone from being the darling of many people recommending a good simple instant access savings account to attracting opprobrium, not just for failing to keep their promise of offering good long term value, although that is bad enough, but also for trying to justify failing to do so with some comments from the press office trying to prove black is white.

Maybe they actually believe their own spin, as I note an advert in today’s paper is still claiming that the 5% they are currently paying on their savings account is a “great rate”. Perhaps “great” has a different meaning when translated into Dutch! No company is going to be top of the pops all the time but more respect will be earned by admitting that rather than claiming a rate is great when it is so easy to see it is not.

Much of the of money that was deposited with ING has since moved to ICICI or Icesave and all that is needed to prise much of it away is for a reputable bank to offer a better instant access rate without any catches.

Two savings adverts in the news sections of some of today’s quality papers caught my eye, one because it adopted the strategy I suggested in last weekend’s FT and the other because it seemed rather pointless and thus a huge waste of money. Northern Rock’s advert took up about a fifth of a page and sold the product being promoted well by providing all the key information without being too busy. They are adverting an increased rate of 6.3% AER from 1 Sept on their online instant access account for the over 50s. The advert also states that it only requires £1 to open the account, that the minimum withdrawal is £1 and guarantees to pay at least Bank rate until 31 January 2010. This puts it in line with the other top paying instant access accounts, but with a much better guarantee.

Barclays on the other hand had whole page adverts simply saying “Only half of the people in the United Kingdom save. Here’s something for those who would like to join them.” In much smaller type at the bottom was “A great Day to Day savings rate and an account you can open with just £1. For more information visit barclays.co.uk/savings or pop into your local branch.” If I see an advert that fails to disclose the first piece of information I would want to know about the product being advertised, in this case the interest rate, I make the obvious assumption about how good the rate is and consequently assume the product is uncompetitive.

Another reason I find this advert rather pointless is that it is aimed at an audience that is unlikely to have much interest in the product Barclays is advertising. The reason most of the 50% of the United Kingdom population the advert is aimed at don’t save is that they can’t afford to. Perhaps Barclays is working on the basis that those who can will be sufficiently naive to not ask any awkward questions about the interest rate they are offering!

Categories: Personal finance, Interest rates

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