Don’t bother with bonus interest rates, savers are warned

Business banking news review: week ending 8 Nov 2012

Savers were warned this week to steer clear of bank accounts that carry bonus interest rates, as many are no longer cost-effective in any way, shape, or form.

Bonus rates have declined across the board by a sizable margin. In fact, when this past June you could easily find a 3 percentage point bonus rate, yet now you’d be hard pressed to find anything higher than 2.2 percentage points, and experts say you can avoid the whole mess by simply finding a ‘clean’ savings product that doesn’t have a bonus rate and save yourself some time and effort.

It has been a common tactic for years to lure new savers in by offering bank accounts with high bonus rates that run for an introductory period. For the most part this ploy has been quite effective, especially since banks and building societies count on consumer apathy to not bother switching savings accounts once the bonus rate expires, leaving customers with positively awful rates of return in some instances, but these bonus rates have fallen so far that nowadays you don’t have to look very far to find a competitive rate at a rival bank – and one that won’t be a hassle or a disappointment once the interest rates drop.

Look for instance at the cash ISA market, where you have the AA’s Postal Access tax-free saver that carries a 2.7 per cent rate of return – but only for the first year, leaving your rate of return at 0.5 per cent after 12 short months. Meanwhile, compare it to M&S and its 2.75 per cent cash ISA rate, which will not drop as there is no introductory bonus rate.

It’s not just tax-free savings accounts that are competitive either, as many easy access savers that bear introductory rates are dropping precipitously as well. Halifax’s Online Saver, which used to offer 2.7 per cent return, now stands at a paltry 2.05 per cent before dropping to an almost criminally low 0.1 per cent after 12 months – meanwhile, Saffron BS offers an easy access saver with quite similar terms that awards 2.5 per cent in returns, and will not plummet like a savings account bearing a bonus rate.

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