Several banks and building societies have come under fire for not informing existing account holders of better rates on offer to new customers.

The Director General of the Office of Fair Trading accused Northern Rock, in particular, of having a cavalier attitude to savers.

The banking code has been welcomed by the Treasury

Now the major banks and building societies have responded to the criticism by published a revised voluntary banking code which bans obsolete accounts and ensures that all customers receive proper notification of interest rate changes.

John Heaps, chairman of the Building Societies' Association said: "The new code spells the end of the cut-throat tactics and sharp practices used by some savings institutions to lure new customers at the expense of existing savers."

The Treasury also welcomed the changes.

The Economic Secretary at the time, Patricia Hewitt said: "This is really good news for savers. It is only right and proper that customers have full and up to date information on the terms and conditions of their accounts.

"We want to ensure that customers are provided with clear and accurate information so they have confidence in the decisions they take when dealing with their bank or building society."

Obsolete accounts targeted

The new code aims to protect savers who find themselves in obsolete accounts that are no longer actively marketed by their bank.

The code ensures that banks and building societies have to maintain the interest rate on obsolete accounts at the same level as similar newer savings accounts.

The Consumers' Association had criticised both banks and building societies for introducing new accounts, paying headline rates of interest, while whittling away the interest rates paid on existing accounts.

The onus is now firmly on the banks to ensure that they inform customers of better paying accounts - and help them switch when necessary - rather than on the customers to check every six months that they are still in a competitive account.

Switch without penalty

The new code also introduces a 60-day "waiver period", where customers may switch accounts without incurring any penalty if the bank has slashed interest rates on their account.

It also introduces tighter regulation to ensure all banks give consumers proper notification of interest rate changes.

Customers will also benefit from the introduction of a "cooling off" period once they have opened a bank accounts. If they change their mind or find a better account customers should be able to get their money back, with interest, within a 14-day period.