The Banking Ombudsman has recently dismissed a complainant’s claim that his bank’s terms and conditions were unfair and amounted to an unenforceable penalty.

The complainant’s trust had a number of term deposits with the bank and the interest payments were made quarterly. In 2022 the trust put money into a further term deposit for the period of a year.

During the year, the trust wished to withdraw money for the purpose of purchasing a property. In order to do this they had to break two term deposits before their maturity.

The bank’s terms and conditions stated that if a person wanted to withdraw a deposit early, a one month notice period was required, and lower interest rates would apply to the amount withdrawn. The lower interest rate was 0.05%.

The complainant argued that this was unfair and essentially amounted to an unenforceable penalty. The Ombudsman had to determine whether the interest rate was fair.

The Ombudsman found that the bank’s terms and conditions had been provided to the complainant in “clear and reasonably plain language, that early withdrawals would be at the bank’s discretion, and that it would apply a lower rate of interest to the amount withdrawn early”. This meant that the complainant should have understood the terms and conditions before signing them.

Based on the interest calculator provided by the bank, the Ombudsman also decided that the lower interest rate of 0.05% was fair and not an unenforceable penalty.

The Ombudsman decided that the bank’s terms and conditions were reasonable and dismissed the complainant’s claim.

It is important to be aware of your rights and obligations in terms of your finances. If you are confused about these obligations, it pays to seek advice from a professional with experience in the area.


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Alan Knowsley and Hunter Flanagan-Connors