It’s that time of year again and an opportunity to remind savers of the tricks that some saving accounts include, which could catch you out and see you earning little or no interest.
For example, last week, we took a look at the new RBS Savings Builder account which has so many rules and conditions, that one could easily forgo earning any interest at all.
As Jeff Prestridge, Personal Finance Editor of The Mail on Sunday commented in last Sunday’s paper, the account “has more conditions than a hypochondriac has ailments. It is riddled with hoops and hurdles”.
Some of these conditions might propel an account to the top of the best buy tables and provide valuable extra interest for canny savers, but they could also trip other savers up.
Here we run through some of the more common terms and conditions to look out for and how you can turn these tricks into treats.
Bonuses
These usually apply to easy access accounts and rather than a bonus that you need to qualify for, it’s normally an enhanced rate for a fixed period of time – after which the rate will drop by the ‘bonus’ amount.
So, it’s important to make a diary note to review the account at that stage, and ideally move it to a better paying account.
This could be the latest version of the account being offered by the same provider, or it might mean moving the money elsewhere. But reviewing is important, as the end of the bonus rate could leave you languishing in a zombie account, paying you virtually nothing.
Post Office Money's Online Saver Issue 33, for example, is paying a competitive rate of 1.38% gross/AER but that includes a bonus of 1.13% for the first 12 months. If you don’t switch at that time, the rate will plummet to just 0.25%.
And look out for accounts that revert to a different, lesser paying account, at the end of a set period – whilst they don’t state that the headline rate includes a bonus, these are still essentially bonus accounts, just in disguise.
Interestingly, bonus accounts were once seen in a negative light – as a trick for providers to lure new savers in. However, as we have recently reported, the FCA is potentially looking to introduce a basic savings rate (BSR) which could effectively cause all new easy access accounts to become bonus accounts, as after a certain period, the rate would have to drop to the BSR. According to FCA research, this cliff edge drop spurs more people into switching
🔖 Read: FCA opens discussions on its plan to force providers to offers a basic savings rate for all
Restricted withdrawals
You may have spotted a few easy access accounts that will either restrict access to a small number of withdrawals each year, or will penalise you if you go over the allocated number. They often give you a clue in the name, such as Virgin Money’s Double Take E-Saver, which as the name suggests allows a maximum of two withdrawals per calendar year. On this account, once the second withdrawal has been made, NO further withdrawals can be made until the next calendar year!
These accounts are, therefore, only appropriate for those who don’t need access to their funds very frequently. They can be a good way to get a higher return as long as you are clear on the terms and conditions and are able to plan withdrawals carefully.
Restrictions on adding new money
This is more common on fixed rate bonds or ISAs and notice accounts.
Once the account is withdrawn from sale, you may not be allowed to add any further funds. This is a particular problem if you want to put the maximum into a cash ISA, if you have made a smaller deposit earlier in the tax year. ISA rules state that you can only subscribe to one cash ISA each tax year, so if the account you have opened is withdrawn you may not be able to utilise your whole ISA allowance that year.
The Family Building Society has recently launched its easy access Premium Saver (1), paying a very competitive rate of 1.45% gross/AER. But it has unusual terms and conditions for an easy access account, in that once you have opened it with at least the minimum of £5,000, you can only add to it until a funding cut-off date – which on this particular issue is 7th December 2018.
So, although this is an easy access account, if you want to add to it, you can’t do so after the cut off date. So you might not want to take funds out unless absolutely necessary.
Lower rates on lower or higher amounts
While tiered accounts are nothing new, it’s important to check out the rate of interest that you will earn on the balance you are likely to have – as some accounts may advertise rates of ‘up to X%’ - indicating a rate that would only apply to a higher balance.
Even if you open the account with the required higher balance, it’s important to remember that if you make a withdrawal, your new balance may fall into the lower tier and you might not continue to earn as much as you expected.
🔖 Read: Where should savers with larger sums to deposit turn?
Interest-paying Current Accounts
There are also accounts that pay a lower amount on a higher balance. Interest-paying Current Account are an example of this – and indeed often come with a plethora of terms and conditions that must be met in order to earn the advertised rate. And, they may also have a bonus included in the rate, as in the case of Nationwide’s FlexDirect Account.
🔖 Read: Top 5 Interest-paying Current Accounts
Current accounts generally require a monthly deposit, akin to a monthly salary, as one the T&Cs, but they may also require direct debits to be set up if you are to earn the high rate of interest – and there may even be a monthly fee.
In addition, the advertised rate may not apply to the whole balance if too much is left in the account. If you leave more than the maximum in the account, the balance above will often earn no interest at all, diluting your overall return.
Although not due to complex T&Cs, savings accounts offered by high street banks should be steered clear of as they pay some of the worst rates available. So these 'zombie' accounts and accounts where the bonus has ended offer no value to your hard earned savings. But, as long as you are aware of all the terms and conditions, you can turn the tricks into treats, to help your cash work as hard as possible.
Read our ‘Facts’ under each of the accounts featured on our Best Buy Tables and the terms and conditions of each account carefully before proceeding to ensure you are aware of how the account works.
It’s not just certain savings accounts that can be tricky – it can be a whole type of product. Over the years, the ISA market has become increasing complex, to the point where the Office of Tax Simplification is exploring ways to simplify the taxation of individual’s savings income
🔖 Read: Complicated ISA rules to be reviewed
Not only are there so many types of ISA to choose from, but they all seem to have different rules and the introduction of the Personal Savings Allowance has also made it all the more difficult for cash savers to decide whether a cash ISA is right for them.
🔖 Download: Our free guide about how to navigate the ISA maze
If you are unsure of any aspect of an account, give us a call on 0800 011 9705 and one of our savings experts will be happy to help.
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