Should unclaimed savings go to charity?

Liz Dolan looks at the case for handing some of the £20 bn estimated to be in dormant accounts to good causes

National Savings and Investments is writing to 2.7 m savers with money in an NS&I Ordinary account telling them that the account is to be replaced by a better paying alternative.

The new Easy Access account opens on Thurday next week, and the ordinary account, which was launched in 1861 in its old guise of the Post Office savings account will close on July 31.

The 2.7 m due to receive letters have all used their accounts in the last two years. But N&SI are not contacting the remaining 10 m people whose accounts have been dormant for more than two years. Instead it is relying on advertisements and press reports to keep the 10 m account holders informed of the change.

N&SI says not unreasonably that it would not be cost-effective to contact nearly 13 m people, many of whom must be dead and neary 6 m of whom have balances of less than £1.

The popularity of the ordinary savings account has been declining since the 1950s. And no wonder: the interest on most accounts is just 0.25 per cent. The total invested in the accounts is £12.9 m - roughly £1 per saver. It is a fair bet that much of this money will never be claimed. .

Last summer, Martyn Jones, a Labour MP, amassed 131 signatures from MPs of all parties for an Early Day Motion ca1ling for money in dormant bank and building society accounts to be handed to be handed over to good causes, with some held over for anyone claiming membership after the deadline.

Jones reckons there could be as much as £20 bn held in these dormant accounts, which could be put to much better use.

Steve Jones, parliamentary assistant to Martyn Jones, says:

"We also wrote to all the banks and building societies asking how many dormant accounts they had and the total value of the contents. The building societies were fairly forthcoming, but the banks were very guarded, very unco-operative. Some were really quite rude.

"Banks are not obliged to do anything with the money. Martyn wants the Government to legislate to change this scandalous situation."

Several other countries have rules which prevent money languishing in dormant accounts. In the US, for example, money unclaimed after seven years is commandeered by the state in which the bank is located. It is estimated that some $300 bn is held in this way.

According to Keith Hollender, the managing director of the UK's Unclaimed Assets Register (UAR), money is under the Laws of Escheat, a medieval English term meaning "held by the crown".

For £18 a shot, the UAR will trace assets held by a whole range of financial institutions, from banks and building societies to insurance companies and share registers.

Hollender says:

"We've always said it's probably a good idea to pay the stuff over to charity if you can't find the owners. The institutions argue that it's not theirs to give away, but surely money that's been held for decades could be given to charity and an indemnity policy could be take out to pay out money claimed after that."

A few years ago, the Irish government announced that money unclaimed after 15 years would be taken from the banks and used for charitable projects.

The banks had two years' grace to trace the owners first. Astonishingly, something like 60 per cent of the missing accountholders were traced before the deadline.

It is impossible to discover how many missing account holders are tracked, down by the banks each year. The British Bankers Association which runs a free tacing service, hands over the results of its detective work to individual banks, who complete the exercise where possible.

In the US, any money unclaimed after seven years is commandeered by the state

It claims that it is not allowed to know the results of the search "for data protection reasons", so is unable to keep comprehensive records of how many searches are successful.

Steve Jones points to what happened in Ireland as proof that banks achieve much better results if forced to take the matter seriously. "There's no incentive for them at the moment," he says. "They can simply use the interest they earn to boost their profits."

Rachel Blackmore, the external affairs manager at the Building Societies Association says the situation is slightly different for building societies.

While the shareholders benefit from any increases to bank profits, it is the customers that benefit from any entra money held by building societies in terms of higher savings rate and lower borrowing rates, she says. This is because, as mutuals, the societies are owned their customers.

"Our view is that the money. belongs to our members, not to charities or to anyone else,"

she says.

The new NS&I Easy Access account pays 2.5 per cent interest on balances between £100 and £999, rising in stages to 3.55 per cent on £50,000 plus. This compares with just 0.25 per cent on balances below £500 and 0.35 per cent on higher balances in the old ordinary accounts.

All balances in ordinary accounts are still recorded in passbooks. Savers can only withdraw money from post offices and are restricted to £100 a time, unless they have registered to be able to withdraw up to £250 from a nominated post office.

Those taking out one of the new accounts will be issued with cash cards that may be used in ATMs, thus depriving the beleaguered sub-post offices of yet more work - although accountholders will have the option to ask post office staff to swipe their cards in machines behind the counter if they prefer.

The passbooks cause NS&I no end of problems. Interest can only be added if they are returned to the Glasgow office. Two members of staff work full-time on converting around 250 balances a week into decimal currency. Last week, they were busy doing so to a passbook issued in 1891, which had just been sent in by administrators of an estate. Most of these balances (including the 1891 account) are worth less than £l.