Check for bonuses

Providers are jostling for position at the top of the best-buy tables – but the best-paying accounts often come with caveats that can catch out unwary savers.

Andrew Hagger, of the financial information website MoneyComms, says: “Some banks and building societies use a bonus element to boost the overall interest rate on easy-access savings accounts as a way of tricking themselves into the best-buy tables.”

He says this means that at the time you sign up for a deal with a bonus, it may well be competitive. But when that bonus drops away after six or 12 months, it is unlikely to be offering such good value.

“It’s up to you to set a reminder for that time to switch to a better savings deal,” he says. “The providers are banking on you forgetting to do this, enabling them to profit by paying you a sub-standard rate on your nest egg.”

Examples include Tesco Bank’s Internet Saver, which pays 4.4%. But that is made up of a 3.15% fixed bonus rate for 12 months, on top of the variable standard rate, now at 1.25%. So after a year, the account will only pay that paltry 1.25% – or less, if rates have fallen.

Post Office Money’s Online Saver Issue 75 is similar. It pays 4.55% AER (annual equivalent rate) which includes 3.10% bonus for 12 months. At that point it falls to the standard rate, now 1.45%.

Don’t assume ‘easy’ is easy

Savers usually choose an easy-access account when they want the freedom to withdraw their cash whenever they want. But some best-buy accounts limit the number of withdrawals you can make each year without losing interest.

Analysis of data by Moneyfacts, by the consumer group Which?, found that half the top 10 market-leading instant-access accounts place a limit on the number of withdrawals you can make before the interest rate falls.

As indicated by the account name, Chorley building society’s Single Access Saver – not currently available – allowed just one withdrawal before the rate is cut.

But Kevin Mountford, the co-founder of the savings platform Raisin UK, says: “While some accounts, like West Brom’s Four Access Saver, clearly indicate the limitations in the name, others might not be as upfront.

“In some cases, accounts that are branded as ‘easy access’ may have hidden limits on withdrawals, only revealed in the fine print.

“It’s important to carefully read the terms, or ask your provider directly to avoid any surprises if you need to access your funds more frequently than the account allows.”

For example, the Easy Access Saver, offered by savings app Chip, allows three withdrawals a year before the interest rate is cut from 5% to 3.90%.

Yorkshire building society’s Rainy Day Account Issue 2 pays 4.80% but it only allows for two rainy days each year – the account is closed on the second withdrawal.

Watch for tiers

Some banks pay different interest rates on different portions of your balance – and it’s not necessarily the case that the more you save the better the rate.

Some providers offer best-buy table-topping rates on the first few thousand pounds, then nothing at all on higher balances.

Anna Bowes, a co-founder of Savings Champion, says: “For example, the best-paying easy-access account in the market as we speak is Santander Edge Saver Account (Issue 2) paying 6%.

“But this is only for those who have, or open, an Edge Current Account and this rate is only paid on balances of up to £4,000. Anything above earns no interest, so would dilute the overall return.” The rate also includes a bonus which lasts just 12 months.

She says the Cahoot Sunny Day Saver (Cahoot is part of Santander) is similar in that it pays 5% on balances of up to £3,000, – nothing on anything more –but you don’t need a current account to open it.

“After 12 months, your cash will be transferred to a different easy-access Cahoot savings account, so is not likely to be very competitive. A double whammy,” she says.

Some banks structure the tiers to incentivise more saving. Ulster Bank’s Loyalty Saver pays 2.25% AER on balances from £1 to £4,999. When you hit £5,000 the headline rate of 5.20% kicks in for the entire balance. If you make a withdrawal that takes you to below £5,000, you’d be back to earning 2.25%. To take one out, you also need a current account with the bank.

Requirements to have a “linked account” are more common with regular saver deals. First Direct and the Co-operative Bank both pay 7% on regular saver accounts, but require you to hold a current account with them.

Know the limits

Look out for rules around minimum and maximum deposits. Oxbury Bank’s Easy Access Account Special Edition 1 pays 4.87%, but requires an opening balance of at least £25,000. If your balance falls below that, you won’t be paid any interest at all.

Monument Bank’s Easy Access Savings, which pays 4.81%, also requires a minimum £25,000, although this can be held across all your Monument savings accounts.

Meanwhile, regular savers tend to offer some of the best interest rates on the market … but with a significant catch. They usually limit the amount you can deposit each month. This means that while the rate is impressive, what you can earn is relatively small compared with a standard savings account.

The clue’s in the name with Yorkshire building society’s £50 Regular Saver – not currently available on its site. It paid an impressive 8%, but the most you could stash away each month was £50.

Nationwide’s Flex Regular Saver pays 6.5% with a monthly savings cap of £200, while Coventry’s Sunny Day Saver (6), at 4.7%, has a limit of £150 a month.

Do the sums

The rate usually quoted on a savings account is its AER. This is what you would get if the money was there for 12 months, and the rate remained unchanged.

While the headline AER on a regular saver is likely to be the most eye-catching, you need to remember that the way it is set up means you will not be earning that much interest on much of your money. Only the first payment will get a whole year’s worth of interest, and everything else will earn less.

If you pay in the same sum each month, the total interest you earn will be about half of that on the headline advertised rate.

All rates correct on 10 October 2024