ING quizzed on its savers' future

Clare Francis: Hundreds of thousands of UK savers were affected by the collapse of the Icelandic banks. Those who had accounts with Icesave are beginning to get their money refunded through the Financial Services Compensation Scheme. Fortunately around 180,000 customers who had accounts with Kaupthing Edge and Heritable Bank didn't have to go through the FSCS because ING Direct, the Dutch provider came to their rescue and took over the management of their accounts.

But has the transfer been a smooth process? We've seen on our forums that some people are not happy about the way things are going, so I'm here with Martin Rutland today who's from ING Direct just to ask him about what's going on, what position savers are in at the moment and what the future holds.

Q1: So Martin, can you just explain? You took over the management of around 180,000 accounts with Kaupthing Edge and Heritable Bank, and transferred them over to ING Direct - has that process now been completed?

Martin Rutland: Well as you say Clare the savings balances and customers were transferred to ING Direct on the 8^th of October, and all accounts that were open at the time were transferred over to us with those customers and we're honouring all the terms and conditions of those accounts.

Q2: And the date, is that quite important? Because one of the things that we've seen quite a bit of on our forums recently from disgruntled customers is from people, particularly who applied for fixed rate bonds with Kaupthing Edge and who have recently received letters or emails from ING Direct saying that these accounts and the rates - which were above 7% - aren't going to be honoured and you'll be sending their money back, they obviously can't fix at that level anymore and they've lost interest and that sort of stuff. Why is that happening?

MR: When the company went into administration, and that was around sort of the 7^th or 8^th of October, legally they were not able to take more deposits or open new accounts, and this is why the administrators have written to a small number of customers who thought they could continue opening fixed rate accounts, and tell them unfortunately, legally, that couldn't be the case. So that logically leads to the position that there are no additional accounts which could be transferred to ING Direct.

Q3: But why were they able to? Because on the Kaupthing Edge website it still appeared as though these accounts were available and obviously people thought they'd gone through the application process. How can people complain that they're now finding out, do they complain to ING, do they complain to the administrators?

MR: Well they were communicated with by the administrators as they are actually running the business, and that's where any issues should be raised - but as I said earlier a clear distinction the accounts that were open before the transfer to ING Direct, absolutely we honour the terms and the rates on those, but legally it was not possible to open accounts after that date.

Q4: And what's been happening with the variable rate customers, because [for] Kaupthing Edge customers the rate has been cut recently following the recent interest rate reductions. How have you communicated that to them and what's happening with Heritable Bank rates?

MR: Okay, it was interesting that we received some calls on the very day that the savings customers were transferred to us saying 'how soon are you going to cut rates?', and that probably coincided with the fact that there was the October half a percent cut in base rates. Our response was 'look, these customers have only just been transferred to us, our number one priority is to make sure that the business is working well, you can get payments in, you can get payments out', and we had a backlog of payments to resolve.

So actually we left the whole question of rates alone for a full month. We then had the surprisingly large cut in base rate of 1.5%, so what we've now done is we've communicated really the effect of those two base rate drops.

Q5: That's the Kaupthing accounts, have the Heritable rates changed yet?

MR: Yes with the Heritable it's slightly different. There's 20,000 customers who came to us there, we have already communicated a half a percent drop in their interest rate, because we didn't have the issues to resolve with Heritable that we did at Kaupthing. We're currently reviewing what will happen to both Heritable rates and ING Direct rates in relation to the last drop in base rate, and I'd expect around the early part of December we'll come to a decision.

Q6: With regards to the rates, obviously one of the reasons why many people would have opened the Kaupthing Edge easy access account was because it paid a really high rate, a competitive rate, that had a bank rate guarantee until 2013. The rate was significant - it didn't include a bonus or anything so the rate was significantly higher than the standard rate on ING Directs -

MR: - and many other accounts out there -

Q7: Yes, but obviously they [Kaupthing] are now owned by ING Direct. But on the ING Direct account does this mean - because your standard rate at the moment is 4.25% AER on that account, and that doesn't reflect the rate cut yet - are we to expect that the rates on the Kaupthing Edge and Heritable will become much less competitive?

MR: Well I think the Kaupthing Edge was a leading rate in the market, and that's not part of ING Directs strategy to have 'the leading rate in the market'. We want to have a rate which is sufficient to get peoples attention, but no, that's not part of our strategy. But the rate that Kaupthing Edge customers are still on, 4.65% AER, is still a very competitive rate.

Q8: Yes, that's the case at the moment, but will the Kaupthing rate be eroded and become less competitive?

MR: Well we've yet to make actual decisions on products, pricing, but as I said, those customers have signed up for certain products, they can stay on those with the pricing that was offered at that time, although on the variable rate accounts of course that could move. But I think in the new year there'll be a clearer picture, but if you logically follow what ING Directs strategy is, which is to actually pay their existing customers a consistently good rate, then I think that's what you can expect to see both on Kaupthing and Heritable.

Q9: You mentioned the ING Direct strategy - that's changed quite considerably hasn't it since ING Direct launched in the UK in 2003? Because when you launched it was very much you came out saying 'this is a catch-free account, we'll pay one consistent rate available to all customers, there will be no bonuses, this, that and the other'. But that changed quite significantly didn't it, sort-of back end last year / early this year when you launched an introductory bonus for new customers? So you seem to be doing everything you criticised others for doing for luring people in with a high headline rate which then drops back?

MR: Obviously I see it in a slightly different way Clare, and I don't think its any surprise that after four successful years you look to evolve your strategy or to see how competitors have responded. But back in 2003 when ING Direct arrived in the UK, it brought some much needed competition, and sitting here I'm very confident that as a result of ING Direct coming to the UK, UK savers have benefited to the tunes of many billions of pounds in extra interest on their savings either that we've paid or competitors have stepped up to.

So after four years of sticking with our initial launch strategy, we asked ourselves a couple of questions, and that was around priorities. Number one we wanted to continue paying our customers, existing customers, a consistently good rate. Number two we looked at the market and some high street providers had a gap of 6% between what their best rate was and what they were paying some of their existing savers, and we said that wasn't fair, honest, transparent way to do business.

So going forward our strategy is always pay your existing customers a consistently good rate, but compete with the high street banks by having a rate that's not best buy, but is enough to get into the moneysupermarket.com and other best buy tables to get peoples attention, but be absolutely clear it will last for a year and then it will revert to our standard rate.

Q10: You were just mentioning the competition in the market - there's been massive changes hasn't there over recent weeks, because of the financial crisis we've seen a huge amount of consolidation. Obviously ING Direct bought the accounts of Kaupthing and Heritable; we've got Abbey, A&L and Bradford and Bingley all part of the same group, the proposed mergers - lots of building societies merging and this, that and the other. Is that going to have a negative effect do you think on savers and the rates they're going to get? Because if there's less competition, providers like yourself don't have to fight as hard to attract new business?

MR: No, and again I go back to your moneysupermarket.com, you only have to look at the number of savers that are either advertising or being promoted, so no I think competition is still going to be very intense and I think it's interesting if you enter into a recession, historically people start to save more. I mean I think the savings ratio currently is the lowest level for some 50 years, but if you look back over the last century, every time the economy hit a bump in the road people did start to save more, so I think there's two things: still plenty of competition, and actually people will be wanting to save a bit more of their money.

Q11: Even though the incentive to save will be less? Because obviously we've got interest rates falling, and bank rates now 3% - it could drop even lower in the next few months which is obviously going to bring savings rates down. Do you think that's going to have an effect and people might think what's the point in saving because I can't get very much of a return and therefore they'll do other things with their money, or do you think it is this sort of preservation and squirreling it away just in case?

MR: If you look at our savings account its basically instant access savings account for rainy days, and if people see rainy days ahead they do start to put more away and you know interest rates have been as low as this historically. They have been higher, but people's mindset when they see people becoming unemployed, they want to build in that buffer in their savings and I think this will be the case this time.

CF: Martin, thanks very much.