Money: A great disappearing act

Unless financial planning is a hobby, you probably keep your spare cash in a savings account with a well-known bank or building society and forget about it. You assume it will accrue the going rate of interest.

Wrong! Your account could become obsolete - superseded by a new version paying more interest. It could even disappear if you wait long enough.

Eight out of 10 people do not know what interest rate they are getting on their savings, according to recent research conducted by NOP for Nationwide Building Society.

An account becomes obsolete when an institution launches another one to recruit fresh savers, then closes the old one to new depositors. The new account can pay more interest or have better conditions. The rash of demutualisations and mergers in the industry has rendered many accounts obsolete. In some cases, depositors are finding out to their cost that the lure of free shares has led to them lose sight of the rates they are earning.

Some institutions are taking a more responsible approach to telling savers about products than in the past. Should your money be lodged in a dead- end account paying a pittance in interest, many building societies will nowswitch it to a better earner.

Last month, a court backed a small investor's claim that his savings account paid too little in interest.

Robert Anthony claimed Norwich and Peterborough Building Society's marketing literature had promised his Tessa account would pay "a very competitive rate of interest".

But over four years the rate paid was near the bottom of the league tables.

The judge awarded him pounds 285 - the extra interest he would have earned in an average paying account. After initially claiming this did not mean it had to do the same for 16,000 other savers with the same Tessa, Norwich and Peterborough said last week it would stump up pounds 2m for just that purpose.

The Building Societies Ombudsman ruled four years ago that Nationwide should pay compensation to an investor who lost pounds 30 in interest when an account became obsolete. It was held not to have given enough publicity on the difference in interest rates between the old account and a new one paying more.

Nowadays, societies are more switched on. When Abbey National took overNational & Provincial last August, N&P accounts were automatically transformed into equivalent, many higher-paying, Abbey National ones.

When Halifax merged with Leeds it transferred 2.5 million obsolete accounts to new ones. Cheltenham & Gloucester took the initiative three years ago, switching funds from old accounts to new, more appropriate accounts. Many other societies have done the same thing.

However, some obsolete accounts remain.

Alliance & Leicester, for example, has more than 12 types of account which are closed to new investors: CashPlus, Ninety Day Account, Gross Interest Account, Treasurer's Account, Premium Plus, Prime Plus, Investment Plus, Readymoney Plus, Moneybuilder Plus, Bonus 180, Bonus 90 and Keysaver.

Some have been around for a long time and simply pay instant access, and therefore low, rates. An Alliance & Leicester spokeswoman admits many of these account holders do not need instant access and should change to notice accounts to earn higher interest.

"We're expecting quite a lot of transfers this month because letters are going out with annual statements due in February," she says.

Despite its decision regarding N&P, Abbey National says it still has a few obsolete accounts, but it is contacting customers and hopes these accounts will be closed by the middle of this year.

Obsolete or not, some dormant accounts vanish into the ether altogether.

Stuart Cliffe of the National Association of Banking Customers tells of one woman who recently went to a bank with a deposit account passbook she had not used since 1970. She was told that unless she could give the computer reference for the account the fact she had the passbook was academic.

Her money had been swallowed up by the technological revolution.

The Building Societies Ombudsman, Brian Murphy, says: "The attitude I take is that the building societies must make information relatively accessible, but at the same time the investor must be vigilant. It's a two-way thing."

Mr Cliffe disagrees: "We feel that if an account is dormant for 12 months or more, it ought to be the responsibility of the bank or building society to make sure the person is still living at that address."

The association is proposing this as an amendment to the Code of Banking Practice to be revised next month. These institutions have far better resources than the average customer, so it should be up to them, he argues.

Until then, it pays to check at least every six monthswhether or not your hard-earned cash is earning the right amount of interest. A few minutes' work to rejuvenate your piggy-bank could be worth many pounds' interest. And you won't turn into an anorak just for making sure.