Advertisements For Deposits

Advertising of deposit savings accounts, such as those offered by building societies and banks (including finance houses) is covered by the British Code of Advertising Practice and supplemented by a voluntary code under the auspices of the Bank of England and the Registry of Friendly Societies.

The main areas covered by the Code are outlined below.

Deposit-based personal pension plans are also to be covered by additional rules (covering aspects such as projection of possible benefits) - regulations under the Social Security Act 1986 were expected to come into force in 1989, but had not been announced at the time this website was published.

Interest rates An advertisement does not have to quote interest rates. But, if it does, then it must show either the 'gross rate' - the rate before tax has been deducted - or the 'net rate' - the rate you get after the equivalent of basic rate tax has been paid. (Banks, building societies and most similar organisations have an arrangement with the taxman whereby they hand over tax at a special 'composite rate' before paying you or crediting you with interest. If you're a basic rate taxpayer there's no more tax to pay. Higher rate taxpayers have extra tax to pay. Non-taxpayers can't reclaim the tax already deducted.)

The net rate can be accompanied by something called the 'gross equivalent rate'. This can be for either basic rate or higher rate taxpayers, and tells you how much before-tax income you'd have needed to earn elsewhere in order to have been left with the quoted net rate after meeting your tax bill. (The gross equivalent rate will be higher than the gross rate because basic rate tax is higher than the composite rate tax paid by the organisation.)

The advertisement can also quote the gross or net 'compounded annual rate' (CAR ). This takes account of when you are paid, or credited with, the interest.

TIP - - The compounded annual rate tells you the true return you're getting and is the rate you can compare with the returns available on other deposits or other investments.

Withdrawal terms An advertisement should tell you the normal withdrawal terms for the account being advertised - for example, any notice period, or interest penalties. If there's always a penalty on withdrawal, then phrases such as 'instant access' and 'immediate withdrawal' mustn't be placed next to the interest rate, if shown, because in practice you'll never achieve the quoted return.

WARNING Advertisements for deposit savings accounts don't have to mention any limits on immediate withdrawals imposed by your branch of the bank, or building society - for example, a maximum of BOO cash per day - and can use phrases such as `instant access' even when such limits apply. (Though one Trading Standards Department has stated that this might contravene the Trade Descriptions Act 1968, this view has not so far been put to the test.) A leaflet available at the branch should include this information or at least warn you that there may be a limit. So make sure you get and read all relevant literature before you open an account.

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Advert Projections

Invest just £45 per month now, collect £46,145 in 15 years time is an example of another well-used technique. Research into investment performance has failed to find any reliable methods of predicting future growth - what will happen to your investment is anyone's guess. Under the new rules, projections are still allowed and are commonly used in the sale of life insurance and pensions. But now projections must be given using standard growth rates, so the advertiser can't make his product more appealing simply by basing forecasts on optimistic assumptions about future growth.

... see: Advert Projections

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