Bonus bonanza on savings
Rachel Thrussell, Head of Savings at Moneyfacts.co.uk – the leading independent financial comparison site, comments:
“Unusually the last two months has seen a boom in the variable rate savings market, with rates rising and new accounts are being launched to top the charts. Within a period of base rate stability it’s almost unheard of for providers to offer increased rates to their savers. The savings market is booming, and with rates to be found at 0.75% above base, it’s a great time for savers to review their accounts.
“Fierce competition is driving rates forward, but there has got to be a point at which it is unprofitable to offer these deals, and it’s unlikely that many of the top rates are sustainable.
“Bradford and Bingley led the field at the start of the boom pushing rates to a market leading 6.40% on its no strings internet account. But as the first to rise, they are now also one of the first to fall. Only last Thursday it withdrew the market leading Internet Saver, replacing it with the new eSavings issue 5 paying a lower rate of 6.20%
“This combined with the announcement last week that Barclays had cut rates on its savings range by up to 0.25%, and only a week prior the market leading ISA from Tipton & Coseley dropped its rate by 0.10%. This sparks fears that the boom was only short lived, and that perhaps the market may have reached its peak and has gone beyond what is sustainable.
“But this is only half of the picture, as providers begin to use another tactic to maintain these high paying accounts. The attention has turned from offering competitive rates on no strings accounts to accounts with bonus conditions. So the peak of the boom sparks a bonus bonanza.
“Offering high rates with either bonuses or restrictions is a more affordable way to compete. Meaning either that the ‘inflated’ rate is only guaranteed for a limit period, or reducing costs by limiting withdrawals or access rights for example.
“Don’t be sucked in by the headline rate without first finding out the full conditions. Often the extra you receive in interest is a short term gain and is quickly outweighed by the effort of becoming a rate tart. Looking into the future, a slightly lower, yet sustained rate may offer better returns.
“Headline rates are being used as bait to hook in savers, hoping that, once their have bitten, they will stay beyond the introductory period.
“But with rates as high as 6.30% on a no notice no strings account, these rates seriously compete even with the bonus accounts and don’t have a written in condition that the rate can (and probably) will fall within 6-12 months.
“Don’t take a deal at face value. Ensure you know the exact terms of the account before signing up.”
Provider |
|
Account |
Gross Rate |
Guarantee / bonus |
Leeds BS |
New launch |
Online Freedom 50 (available to those aged over 50) |
6.45% |
Base rate plus 0.70% to 30.4.08, then base rate plus 0.35% to 31.10.08, then base rate until 31.10.10. |
Scarborough BS |
Rate increased by 0.10% (29.10.07) |
Direct Exclusive Saver |
6.40% |
Includes 0.65% bonus for first year |
Stroud & Swindon BS |
New launch |
Branch Premier Issue 2 |
6.35% |
Base rate plus 0.60% until 31.1.09, than base rate plus 0.30% to 31.12.10. |
West Bromwich BS |
New Launch |
Premier Bonus Tracker 3 |
6.50% |
1% bonus until 30.4.08, then 0.5% until 1.10.08, then base rate plus 0.25% to 1.10.08, then account will revert to Direct Tracker Saver Rate. |
Moneyfacts.co.uk – the money search engine |
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Moneyfacts Group
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