Should you pick a savings account with a bonus?

Easy access accounts are increasingly offering teaser deals or restrictions. Make sure you check the small print before you dive in

Millions of savers put their money into deals with bonus rates each year, tempted by the boosted returns on their cash. However, exclusive research for Moneywise suggests customers could be losing out in the long run by doing this.

Banks and building societies often use deals with inflated bonus or teaser rates to win over new customers. Around a fifth of best-buy savings accounts last year included a short-term bonus.

These rates are very competitive at first, but then at the end of the temporary period – usually 12 months – they drop dramatically.

Research shows that most people do not switch once their bonus period comes to an end. Only four in 10 savers move their cash to a higher-paying account when their bonus expires and the rate on their savings drops, according to research by Investec Bank for Moneywise.

Worryingly, of those with money left in savings accounts after their bonus expires, only six out of 10 know their new rate of interest.

For savers who do not move their money, it may make more sense to go for a slightly lower rate without a bonus.

Linda Brown, head of savings at Investec Bank, says: “It is important for savers choosing accounts to be aware when their bonus expires and ensure they are happy with their new rate of interest.

“There are lots of changes in the retail savings market and people need to keep a close eye on the interest rates and be comfortable with them being competitive and fair.”

Providers that have topped the best-buy tables in the past year with a bonus rate include Marcus from Goldman Sachs, Cynergy Bank and Coventry Building Society.

One of the highest paying easy-access accounts currently available is the Saga Easy Access Savings Account. It pays 1.2% and can be opened and managed online with a deposit of £1. The rate includes a 0.2% bonus for 12 months.

This means that after a year the rate drops to 1%, putting it below what you would get if you took out the Marcus account, which now pays 1.2%, and does not have a bonus.

The Saga deal is effectively a rebadged version of the Marcus account, with a few extra perks for the over-50s such as discounts at shops and restaurants.

Andrew Hagger, savings expert from Moneycomms, says: “While you can understand why some people are attracted to rates inflated by a bonus element, too many are falling into the trap of not switching when the rate falls, undoing their initial good work and leaving their savings provider to benefit at their expense.”

Best easy-access accounts

Watch out for restrictions

It is not just bonus rates that you have to look out for either as easy-access accounts sometimes have other restrictions.

Until recently, Virgin Money’s easy-access account was a best buy with a rate of 1.31%. However, it only allowed account holders to make two withdrawals a year.

Other top rates are often only available to customers who have been with their bank for some time.

Cynergy Bank is offering a rate 1.15%, but it is only available to existing customers. Meanwhile, Family Building Society’s Market Tracker Saver account at 1.13% only allows you 20 withdrawals a year.

Tips for choosing a savings account

Make sure you look closely at the terms and conditions, so you know what you are getting into.

If you take out an account with a bonus rate, make sure you set yourself a reminder to transfer your cash out to a better alternative once it ends.

It is also wise to shop around as high street bank rates are not always the best and often lower than those offered by smaller providers.

FEATURED PRODUCT

Marcus by Goldman Sachs, 1.2%

Marcus by Goldman Sachs pays 1.2% interest a month. A deposit is not required to open it but you will need a UK phone number. The account can be opened and managed online and withdrawals are unlimited.