Ask Anna: Why is the ICICI UK account no longer at the top of your Easy Access Best Buy table?

13th April 2018

Q. Why is the ICICI UK account no longer at the top of your Easy Access Best Buy table?

A. As explained in our article 'Why are interest rates so important?' there are two interest rates shown on our best buy tables, the gross rate and the AER (Annual Equivalent Rate).

Both of these rates are before the deduction of tax.

The gross rate shows the actual interest rate that the account is paying today.

The AER is designed to show savers what they will earn if they leave their money in an account for 12 months.

Comparing the AER is particularly useful when an account has a bonus that is applicable for less than a year and the saver is expecting to leave their money in situ once that bonus has ended.

The ICICI Bank UK HiSAVE Bonus Saver has a bonus that applies only until 31st January 2019 - this means that you will earn the gross rate of 1.34% until then.

After this date, the rate drops to 0.65% gross. So, assuming the monthly interest was left to accrue, the AER of 1.35%* noted on the provider’s website would only have been achievable for one day, the 1st Feb 2018, when the bonus would have then had a full year to apply (until 31st January 2019).

After the 1st Feb 2018, the true AER will have started to drop each day.

For example, if you opened the account on the 31st March and were to keep your money in the account for 12 months from that date, you would earn 1.34% for 10 months and 0.65% for 2 months – this equates to an annual rate, or AER, of approximately 1.23% - not 1.35%.

Although the gross rate will remain at 1.34%, the AER will reduce every day, as the bonus deadline gets closer.

Of course, for those who are unlikely to keep their money in the account beyond 31st January 2019, the ICICI account may still offer the best return, as the money will be withdrawn before the rate drops.

If this is the case, the gross rate is the most important factor to compare with the next best alternative.

This account raises an interesting dilemma. Accounts that offer a bonus rate until a fixed date were once much more popular, but the obligated use of the AER rate meant that the AER should clearly illustrate if the bonus is due to end within 12 months of opening the account – if applied correctly.

That’s not what the ICICI Bank website is showing however, which is misleading. It continues to illustrate the AER as 1.35%, which is incorrect and therefore we have decided to remove it from our tables.

The majority of bonus accounts these days offer a bonus rate for a fixed period – usually 12 months from the date of opening the account – which means that the gross rate and the AER would be the same and the confusion surrounding the ICICI account does not apply.

*The reason the AER mentioned is slightly higher than the gross rate, is that the account pays the interest monthly. If the interest remains in the account, it would accrue to 1.35% if that rate applied for the full year.

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