Best savings rates are not all they might seem

When Saga launched its Internet Saver 16 account last month it went straight into the top 10 of the best-buy savings account tables.

The account, which pays 1.55 per cent AER, immediately came in as fourth best on the list.

Compared with the rates paid by other providers, some with an AER of only 0.1 per cent, Saga's rate would seem to be a good deal. But according to one of the UK's top savings experts, that's not the whole story.

For on the same day the Saga account was launched, BM Savings withdrew a telephone savings account paying 1.6 per cent (although it later launched an easy access account paying the same rate for balances over £1,000).

Anna Bowes of SavingsChampion.co.uk explained that both Saga and BM Savings were part of the Bank of Scotland group and shared the same BoS banking licence.

Under the Government-backed Financial Services Compensation Scheme (FSCS) a saver will get up to £85,000 should their bank or savings provider fail.

The compensation scheme, raised nearly three years ago to £85,000, or £170,000 for joint accounts, to comply with the European Deposit Guarantee Schemes Directive, applies to each licence.

So savers with several accounts covered by the same licence might find themselves at risk of losing their money.

Ms Bowes explained that under the scheme a saver is entitled to a total of £85,000 compensation only once under each bank or building society's licence. This means that anyone with more than £85,000 savings spread over several Bank of Scotland licensed brands would not be entitled to all their money back should the bank go bust.

Saga and BM Savings were not the only BoS-owned best buys to appear in the chart. AA Savings, which also shares the same BoS banking licence, was in the same top ten chart paying 1.4 per cent. This account, along with the Saga Saver 16 account, remained in the best buy charts as we went to press.

Ms Bowes said that with at least three savings accounts paying best buy rates, it would be understandable if people had accounts with a couple, if not all three, providers.

She pointed out that AA Savings, BM Savings and Saga were not the only savings providers to share the BoS banking licence. Others include – as well as Bank of Scotland itself – Aviva, Halifax, Intelligent Finance and St James's Place.

"BoS are probably the worst example as they have so many brands, but there are others," she said.

Although many savers know about the compensation scheme, Ms Bowes feels that more could be done to raise awareness of shared licences.

"Often savers really have to look through a bank's website to find out whether they share a banking licence. It's not always that clear."

Ms Bowes said that ideally all brands should have a separate licence. She pointed out that with so much consolidation in the banking industry since the credit crisis, it could be difficult for savers to keep up, and with rates so low it was more important than ever to shop around.

Other examples of shared licences include National Counties Building Society, which shares its licence with the newly launched Family Building Society.

Yorkshire Building Society's licence is shared with the Chelsea Building Society, Barnsley Building Society, Egg and Norwich & Peterborough Building Society.

Many well-known brands have, however, been absorbed by their new parent bank or building society.

Santander has re-branded all Abbey, Bradford & Bingley and Alliance & Leicester savings accounts under the Santander umbrella. Similarly Co-operative Bank has all but ditched the Britannia Building Society brand after its takeover in 2009, although Smile still operates as a separate brand but shares the Co-op's licence.

Last weekend Nationwide Building Society scrapped the Derbyshire Building Society and Cheshire Building Society brands. All accounts with the latter two will now be Nationwide accounts.

Ms Bowes said: "All savers need to be aware of the compensation scheme. The FSCS has done a great job of letting people know it exists but I don't think it is made clear when there is a shared licence."

But the British Bankers' Association claimed that having a separate licence for each savings brand might not be in the best interests of savers.

Robert Watts of the BBA said: "We're lucky to have a highly competitive banking industry, with a great deal of choice between banks and other providers of accounts, credit and other services.

"It's hard to see how that would continue if every single one of these players was obliged to bear the additional costs and regulation necessary to hold a banking licence. Allowing different brands to share the same banking licence gives consumers better value and more variety.

"Banks are now much better capitalised than they were before the events of the last decade, but it's always worth making sure you know how you are protected under the Financial Services Compensation Scheme."

Andrew McIntyre at the Bank of Scotland pointed savers in the direction of the Financial Conduct Authority's website, www.fca.org.uk. He said: "This has guidance on it so savers can check where the respective banking licence for each of their products sits."

The Building Societies Association said building societies aimed to be open and honest with their customers and most made sure their savers knew which licence they were saving under.

Hilary McVitty at the BSA said: "It is made clear on the website, and many of the building societies involved in takeovers have now been subsumed into their parent company, so there is no confusion."