The Sainsbury’s Isa loyalty penalty grows to £692 as it continues not to auto-raise easy-access rates

Savers with a variable rate Isa with Sainsbury’s Bank continue to be caught out by its sneaky terms and conditions.

Unlike most savings providers, the bank does not automatically apply new rates when they are improved.

Instead, savers have to check online to see if the rate has been raised and then request to have this rate applied to their Isa.

Caught in a trap: Customers who have Sainsbury’s Bank’s variable rate Isa face a £692 interest rate trap because new rates are not automatically applied to their accounts 

A This is Money reader found they could be getting a rate of 4.91 per cent but were instead stuck on a paltry 1.45 per cent because they didn’t know they had to constantly check for and request higher rates. 

On a savings pot of £20,000, this is an interest gap of £692.

At a rate of 1.45 per cent, a saver with £20,000 would get £290 interest. But at a rate of 4.91 per cent, this would grow to £982, more than triple the amount of interest at the lower rate.

This is not a new problem – we have reported on this sneaky tactic before, with variable rates seemingly not variable. 

However, savers who get caught out this way are potentially being penalised even harder than before, due to rate rises in the past year.  

It is one of the tricks banks are using to avoid passing on interest rate hikes to savers.

Last summer, some savers were being paid 0.3 per cent and not getting an automatic uplift from Sainsbury’s.

And in March, we highlighted with our sister title Money Mail how Sainsbury’s was the bank that won’t pass on rate rises unless you ring and ask.

Savers who have Sainsbury’s defined access account have also faced difficulties. Those with this account are forced to open a new issue of the defined saver and close their current one to get a better rate.

The way it works for variable cash Isa customers is that they must contact the bank via telephone or secure message in online banking to have their rates updated to the current on sale rates.

A customer told us: ‘I have had a Sainsbury’s Bank cash Isa variable account for several years. Yesterday I received a letter telling me that my interest rate was currently 1.45 per cent but if I cared to check online, I ‘might be able to get better rates’. 

‘The letter did not state the rates this ‘might’ involve.

‘I went online and was horrified to find that the rate I was entitled to was 4.91 per cent. I called the bank and was told that customers had to check for themselves at all times to see if rates changed, and then ask to be upgraded.

‘This was news to me but I was assured it was in their T&Cs.  

‘I am so infuriated. What are elderly customers to do if they do not go online? Arguably many of these small savers are those who most need any increased interest. Also, how can Sainsbury’s Bank even call this a variable account if it does not vary automatically’.

There is a section on Sainsbury’s Bank’s website under frequently asked questions titled ‘How will you advise me about rate changes’ and it says ‘whenever we change our rates we’ll: update our website or write to you.’

In the terms and conditions, when there is a rate increase, the bank says: ”We can increase your interest rate without giving you advance notice.’

A rate decrease will automatically be applied.

We contacted Sainsbury’s Bank on the matter to ask how the variable rate is applied to customers with this type of Isa and if this was clear to customers on their website. 

A Sainsbury’s Bank spokesperson says: ‘We continually review the market to ensure that we are offering our customers a competitive suite of savings products.’

Andrew Hagger, founder of personal finance website MoneyComms says: This looks like a long-running issue. 

‘If rate increases are only made for new customers then it seems unfair that existing customers are not benefitting from similar rate increases unless they explicitly ask – 

The FCA launched its 14 point action plan on cash savings on 31 July – point 11 of that plan stated ‘The FCA expects firms to take action to prompt their customers in lower paying savings accounts to consider alternatives’ – at present it doesn’t appear to be working and doesn’t appear to sit well with consumer duty rules to offer ‘fair value’.’

James Blower, founder of Savings Guru says: ‘Unfortunately this is a tactic of Sainsbury’s. 

‘It hints at this in the application process where it says ‘If you already have an existing Isa and are looking to apply for a new Isa rate please don’t apply. Just click here to send us a request to have your rate updated’. ‘

‘What Sainsbury’s is doing is paying new customers a better rate to attract them in but not passing on the same rate to previous customers – so existing customers get a worse deal unless they contact Sainsburys to get the new rate. 

‘Sainsbury’s is doing this purely to maximise its profitability – because it knows that many existing customers won’t notice and, those that do, will assume they’re getting the higher rate as well, not that they’ve got to take some action to get it.’

‘There are banks who operate in a similar way using issue numbers, like Cynergy, who create a new ‘issue’ with a higher rate rather than increase the rate to all. 

‘Shawbrook also use issue numbers, for example, but their last easy access issue is actually on a higher rate (5.11 per cent) than the current one (5 per cent) so issue numbers aren’t always used negatively for savers.’

This post first appeared on Dailymail.co.uk