When pensioners Mr and Mrs C from Dublin 8 moved their £100,000 life savings from a Special Savings Account in the TSB to AIB Bank last year on the advice of an acquaintance who worked at AIB, they expected to receive a higher rate of interest. Instead, they lost nearly £1,000.
At first, their funds £50,000 in each of their names in accordance with SSA regulations were invested in 30-day SSA accounts. In June 1997 the money was transferred into a six-month SSA, due to mature on December 23rd.
"Due to unforeseen circumstances, we had to terminate the arrangement on November 28th, a few weeks before maturity," said Mrs C. "The interest credited was £456.29 on each account, £912.58 in total. The early withdrawal charge was £464.65 on each account, or £929.30. I knew we weren't going to get all our interest, but I certainly never thought we'd lose half of it."
Mrs C did not want to embarrass her acquaintance at the bank so she telephoned the Director of Consumer Affairs to inquire about whether the interest rate penalty was correct. They recommended she contact the Central Bank who later informed her that AIB was within its rights to charge such a penalty.
After the National Irish Bank scandal broke, Mrs C decided to take up the complaint again this time with Family Money. "Do you think the charge is excessive?"
Family Money contacted AIB Bank on behalf of Mrs C for an explanation on how it calculates interest penalties for Special Savings Accounts and was told that it is the bank's policy to charge in the region of half any interest due if the terms of a fixed SSA account are not met. This is the case if the account is closed within days of its opening or even within days of its maturity, said a spokesman.
The formula differs between deposit takers. A spokesperson for Ulster Bank said that no interest penalty would have applied in this case because "rates are in fact going down and there would have been no loss to the bank". The AIB practice has been condemned by Douglas Farrell of National Deposit Brokers, the independent money brokers, who told Family Money that interest penalties set by most other institutions usually take into account the unexpired time left.
If rates have changed in the meantime, most other banks calculate the difference between the original rate and new rate over the appropriate period and calculate the interest according to the remaining amount of time left to run.
"To penalise an elderly couple this way, with only three weeks left in their contract is blatantly unjust " Mr Farrell argued.
As a result of our inquiries, AIB has accepted Mrs C's claim that she and her husband were not informed of the size of the interest penalty they were facing and have refunded them £1,000 in interest. A bank spokesman said: "It is very unusual that an account like this would be closed so near to maturity."
Such a customer, he said, would normally be discouraged from doing so and would even be offered a short-term lending facility to cover whatever difficulties they were facing in order not to compromise their interest payment.
He added that any customers with complaints should always bring them to their bank manager or customer complaints office and if they are not settled satisfactorily should then be referred to the Ombudsman.
