Interactive Investor

Beware the hidden strings with top easy access accounts

17th September 2020 13:22

Laura Miller from interactive investor

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Rates can drop sharply and providers also restrict how often savers can access their money.

Savers considering opening an easy-access account should know that three of the top five deals have strings attached, experts say.

These feature rates that drop steeply after one year and can restrict how often cash can be taken out of the deals.

So-called ‘bonus rates’ on savings accounts create an enhanced rate that applies for a set period of time. 

The best and fifth-best deals are from Skipton Building Society, paying 1.2%, and Cynergy, paying 1%. 

But the small print for each reveals a large chunk of that rate – 0.5% for Skipton and 0.55% for Cynergy – are only paid for the first 12 months, at which point the rate drops dramatically.

Both deals only pay interest once a year, rather than more common monthly payments. This means savers who take the deals need to act fast and shop around. As soon as the interest is paid, the rate drops and the earning power of any cash in the account falls instantly.

Anna Bowes, co-founder of Savings Champion, said: “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.

“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.”

Bonuses on savings accounts have been criticised as designed purely to lure new customers in – with the provider hoping consumers would leave their money to languish in a poor paying account once the bonus rate drops away.

But Bowes pointed out for the more active saver, “a bonus account can be really a really valuable way of boosting the income earned – as long as the account is switched when the rate drops”. 

Another string attached to some of the top easy-access accounts are restrictions on how much cash can be taken out in a year.

The third-best deal, from Principality Building Society, pays 1.05% a year. However, savers can only take out money from the account three times a year.

In the FCA’s July 2018 discussion paper,‘Price discrimination in the cash savings market’, the research indicated a large rate cut can actually incentivise people to switch. If there are lots of small rate cut people are likely to simply accept them and remain.

Savers hoping to protect their cash from the eroding powers of inflation will feel a respite this month as the number of inflation-beating accounts on the UK savings market has risen, after the consumer prices index fell sharply.

Inflation fell to 0.2% during August from 1% in July. 

As a result the number of savings deals able to outpace inflation has risen from 91 in total that beat 1%, to 531 today that beat 0.2%, according to Moneyfacts data, including 87 easy-access accounts.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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