The days of simple savings accounts seems to be a thing of the past and yet that’s what consumers appear to want.
According to research from Ford Money that came out this week, 77% of UK savers say banks should make savings accounts easier to understand. And many of these people would like to see banks pay the same rate to both new and existing savers.
Most providers still launch issue after issue of the same account, paying a different rate each time. This can confuse savers, as it can be more difficult to easily identify the rate that they are earning, compared to the rate currently on offer to new savers.
It’s a particular problem if the account chosen offers a large introductory rate, also known as a bonus rate – as once the bonus ends, the rate on offer will often plummet to a very low level. Yet the advertised rate for the new issue will suggest otherwise. It’s up to the saver to make sure they diarise to review their account at the very least once a year.
Take two of the current best buys;
The current issue of the Post Office Money Online Saver account is paying the market-leading rate of 1.33% gross/AER – but this includes an enhanced rate – otherwise referred to as a bonus – of 1.08% for the first 12 months, after which the rate will drop to 0.25%. This current issue (31) was launched on 22nd June. If you’d opened an Online Saver account on 21st June, you would have issue 30, which is paying a rate of 1.22% gross/AER, including a bonus of 0.97%.
Compare this to the simple Freedom Savings Account from RCI Bank, which is paying a flat rate of 1.30% gross/AER at the moment*. If the rate changes on this account, up or down, this will apply to everyone in the account, but it doesn’t have a predetermined date when the rate will plummet.
Six years ago, the majority of accounts included in our easy access best buy table included a bonus in the headline rate they were offering. And these bonuses were up to 84% of the overall rate – which means that after the bonus period, unless savers switched their funds, they would have seen the rate they were earning drop like a stone.
Today, just two of our top five easy access accounts include a traditional bonus – however another condition applies to more and more accounts these days, threatening to trip up savers who don’t carefully run through the terms and conditions. 14% of so-called easy access accounts allow restricted access only – so a limited number of withdrawals per year – fall foul of the rules and the rate will either fall sharply or a penalty may be applied.
In fact, we carried out some additional research which shows that just 10% of providers (15 out of 149) offer a single, simple easy access account for savers to choose from.
It is really important for savers to understand the terms and conditions of each account, so that there are no nasty surprises in the future. This is particularly important if your chosen account includes a hefty bonus that will see the rate plummet after 12 months. The providers hope that you’ll forget, so that they can pay you a pittance going forward.
Bonus accounts and those with restricted access can be an excellent choice for the more savvy and active saver, as they will often pay the best rate for a period of time - but many people forget to move their money regularly.
According to the FCA Cash Savings Market Study, in 2015 around a third of balances in easy access accounts were held in accounts opened more than five years before.
Bank of England figures show that there is currently more than £720bn in easy access accounts. Therefore, potentially at least £240bn is languishing in old savings accounts, many of which will be earning a pittance.
So, a simple account that pays the same rate to both new and existing savers could be more appropriate - as long as the rate remains competitive.
A simple savings account in its own right is not good enough – there are currently only seven easy access accounts paying the same rate to both new and existing customers, that are paying 1% or more. On the other hand, some pay as little as 0.05% – so it pays to make sure you are picking one of the best.
If you’ve got money languishing in an old account, it’s vital to check the rate you are now earning and switch if it is not competitive. It can make all the difference to the pounds in your pocket.
*We are occasionally paid by some providers if you click through from our Best Buy Tables and open a savings or current account with them. We will never accept a payment that compromises in any way our independent, whole of market approach to providing information on savings products. For clarity we will indicate those companies who remunerate us with an asterisk (*).
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