🔔 Is a bonus always good news?

We recently wrote about the rise of the restricted easy access accounts; accounts that only allow a certain number of easy access withdrawals each year. We include these in our easy access table as effectively they do allow you to take your money out immediately. That said, they do require a little more thought, as you may need to close your account and move your all your cash if you are about the utilise your last allowed withdrawal otherwise you might incur a penalty or even not have any further access to your cash until the next year begins.

However, we have also seen that many more of the top easy access accounts are, for all intents and purposes, bonus accounts.

What is a bonus account?

Some accounts pay a higher interest rate for a specific period of time, for example 12 months, after which the rate can drop heavily. However, some accounts state that the account will mature in 12 months or on a certain date, at which point all funds will be transferred to a different, lower paying easy access account – so this amounts to the same thing! Although the latter state there is a maturity date, that doesn’t mean to can’t access your funds, like a fixed term bond, it just means that you should expect the rate to drop.

At the time of writing, out of the top 10 easy access accounts on the market, half of them have a bonus – or rather an enhanced rate. For example, the Beehive Money Limited Issue Easy Access Issue 2 is paying a competitive rate of 5.15% gross, but this includes a bonus of 2.50% until 30/11/2024. So, if you are still holding that account on 1st December next year you need to remember that the rate will drop from that date.

And the top rate on the best buy table, the Metro Bank Instant Access Savings Account, although it doesn’t state that the rate of 5.22% AER includes a bonus, it does state that it has a 12-month term. And at the end of the 12 month period your account will be switched to the standard variable rate, which is currently 1.65% AER. It’s also important to note that you must fund the account with at least £500 within 28 days of opening it otherwise you will not qualify for the Limited-Edition rate of 5.22% - instead the standard variable rate will apply from inception.

Although not currently appearing on our table, there are some other accounts paying market-leading rates that may be available to some savers, but not all – which is why they are not on our Best Buy table. These too have a number of terms and conditions to watch out for.

For example, Santander has its Edge Saver account which is paying a whopping 6.78% gross/7% AER. But this account is only available to Santander Edge Current Account customers and that rate only applies to the first £4,000 held in the account – any additional balance will receive no interest at all. In addition, it includes a bonus of 2.50% which applies for the first 12 months only. So, whilst on the face of it, this looks like a fabulous account, there are a number of things you need to watch out for, otherwise you might not earn the rate you thought.

Cahoot, which interestingly is a division of Santander and therefore shares a banking licence, pays a rate of 5.20% AER on balances of up to £3,000 on its Sunny Day Saver – with no interest on any additional balances. It also has an account called the Cahoot Simple Saver which pays 5.12% AER on balances of up to £500,000 But in a similar way to the Metro Bank Instant Access Savings Account, after 12 months the accounts will be switched to the Cahoot Savings Account which is currently paying just 1.20% AER. A hefty drop which means you should make sure to move your money to a more competitive account at that point.

What should you do?

The whole point of a bonus account, from a savings provider’s position, it to entice customers in with competitive rates, hoping that you will leave the money where it is when the bonus ends – or in the new lower paying account after maturity – earning a pittance.

If you are an active saver however, they can help you to squeeze as much as you can from your cash. But if you are likely to deposit and forget about it, it might pay to open a simple account that doesn’t have any restricted access or bonus rates. A slightly lower rate now, could end up paying higher dividends over time.

At Savings Champion we always advocate regularly reviewing your savings and switching, but not everyone does. So pick the right account to meet your needs.

And of course there is always a Cash Savings Platform that can help those who are cash rich but time poor. With just one application onto the platform you can have access to multiple competitive savings accounts with multiple providers; a simple way to keep your money safe, and earning great rates without the need to continually apply for new accounts.

For more information on our Savings Champion Savers Hub, take a look here.