The week’s news from National Savings & Investments is worrying for more than one reason. Firstly, the obvious sudden loss of interest that NS&I savers will experience if they don’t switch their cash – but also the effect on the rest of the market when they do.
A potential tsunami of cash looking for a new home could very well end the competition that we have seen in the savings market recently.
The worry is that we will either see the window for opening best buy accounts shorten – or the competition in the market could dry up completely, as providers try to manage the amount of savers’ cash that they attract. Savers will need to be quick if they want to access the best rates available.
Over the last couple of weeks, we have seen some battles for the top spot in the easy access market – although you needed to be quick to take advantage.
What's been happening?
It started with a move from Skipton Building Society – who knocked NS&I off the top spot with their Online Bonus Saver – Issue 7, paying 1.20% AER. The last time we saw an easy access account paying 1.20% AER was back in May 2020. However, you had to be quick to open the account, as it was withdrawn within three days of issue.
Coventry Building Society stepped into the void a few days later, launching its Double Access Saver, also paying 1.20% AER – however this was available for a similarly short amount of time, and was replaced by Issue 2 of the same account which, now that we have removed the NS&I accounts due to the impending severe cuts, is currently topping the best buy tables – but with a lower rate of 1.10% AER.
The West Brom Building Society has been the latest provider to jump into the fray (at the time of writing) by replacing its WeBSaveR Single Access Issue 2 (which was available for just over a week paying 0.90%). The new account from West Brom is called the WeBSave Bonus Saver (Issue 3) and is paying 1% AER – which includes a bonus of 0.40% until 31/11/2021.
Is it all as simple as it would appear?
What is interesting to note, is that many of the current best buy accounts are not completely straightforward – so it is important to understand the Terms & Conditions, so that you don’t find yourself earning a lower rate than you thought.
As the name suggests, the Coventry Double Access Saver only allows you to take money out of your account up to two times a year without a charge. From the third withdrawal onwards, you’ll receive a charge equal to 50 days’ interest, based on the amount you are withdrawing.
Similarly, the Principality Online Limited Access account which is the next best account on our best buy table, with a rate of 1.05% AER, only allows up to three withdrawals per calendar year. But what is even more important to realise about this account, is that once you’ve made your three withdrawals, you can have NO further access until the beginning of the following calendar year. So, if you might need further access, you’ll need to close it on the third withdrawal.
Two other accounts in the table don’t have these withdrawal restrictions, but you will earn a higher rate of interest the higher your balance is. So if your balance drops, you could find yourself earning less than before.
The other popular feature of an easy access account is a so-called bonus – something that applied to the West Brom and Skipton accounts mentioned above.
Ultimately a bonus on a savings account is normally simply an enhanced rate that applies for a pre-determined period of time. You generally don’t have to do anything in particular to earn a ‘bonus’. What it does mean is that the account can look very attractive – but there will be a point in time that the rate will be guaranteed to drop – sometimes by a great deal.
There was a time that these so-called bonuses on savings accounts were viewed as something designed purely to lull new customers in – with the provider hoping that these customers would leave their money to languish in a poor paying account once the bonus rate dropped away.
But in the last FCA’s July 2018 Discussion Paper – ‘Price discrimination in the cash savings market’, the research indicated that a large rate cut can actually incentivise people to switch. If there are lots of small rate cuts, it would appear that more people are likely to simply accept them and remain.
Whatever the actual case is, savers need to take on the responsibility of regularly reviewing their savings accounts and switching when there is something better available – as a whole, loyalty simply doesn’t pay.
For the more active saver, a bonus account or restricted withdrawals can be really valuable for boosting the income earned – as long as the account is switched when the rate drops – or you keep a close eye on the number of withdrawals you make. For those who are pretty sure they will not be bothered to switch or regularly review, a simple account which doesn’t include a large bonus could be more appropriate – but doesn’t guarantee ongoing competitiveness.
Many savings accounts now include various terms and conditions that could confuse savers – therefore, although you might need to act quickly, it is important to fully understand how an account works so that you don’t unwittingly end up earning less than you thought - or not have the access you need.