Watchdog criticises West Brom account

West Bromwich Building Society has been accused of encouraging people to invest more in one of its products than is covered by the savers' compensation scheme.

The society is offering a return of 4.27 per cent on its its E Bond 23, but people who want to receive the interest on a monthly basis have to invest at least £50,000. The Financial Services Compensation Scheme (FSCS) covers only the first £50,000 held with a savings institution if it collapses, although this increases to £100,000 for joint account customers.

Consumer group Which? said that by setting the minimum investment at the maximum level that was covered by the FSCS for individuals, the group was encouraging people to breach the limit.

But West Bromwich Building Society said it rejected the allegations and was considering legal action against the group.

It said the bond was available for people who invested only £50,000 in it, and this amount was covered by the FSCS, while the interest earned was paid into a separate account.

It added it did not offer higher returns to people who invested more than £50,000.

Savers have seen the returns on their money dive since the Bank of England first began to cut interest rates in October to a record low of 0.5 per cent now.

Vera Cottrell, Which? personal finance campaigner, said: "Using an attractive rate to encourage savers to start at the FSCS compensation threshold is irresponsible and people need to be aware of the risks involved.

"This may prove a tempting product for people in retirement. However, we'd warn against putting any more than £50,000 of your nest-egg in one institution."

The group said it had written to the society.

But a West Bromwich spokesman said: "These facts clearly demonstrate that Which? has not reviewed the market as a whole, has misrepresented the true position and unfairly criticised the West Brom."

The mutual recently issued a statement rebutting speculation that the Financial Services Authority was organising a takeover for it.