The great vanishing bonus trick

By SYLVIA MORRIS, THIS IS MONEY AND DAILY MAIL SAVINGS EXPERT
Updated:

 

SAVERS are being tempted with new accounts offering eye-catching headline interest rates. But these accounts are boosted by bonuses, and once they disappear, the account can offer very poor deals.

This ruse to attract savers is not new, but it is becoming more widespread, and the bonuses are getting bigger. Now they can be as high as one percentage point, turning a mediocre 4% before tax to a much more attractive 5%.

Some, including Northern Rock and Scarborough Building Society, do not allow their existing savers to switch into the new deals with higher bonuses.

The AA is wooing savers with a headline rate of 5.11% before tax, on its new telephone-based account launched last week.

This puts it head and shoulders above existing top deals. But the rate is boosted by a big bonus of 0.7 points before tax. The underlying rate is 4.41% before tax - worth 3.53% after 20% savings tax.

And there is no guarantee the rate will rise in line with Bank of England base rate.

Savers tempted by the rate need to watch the account carefully once the bonus runs out. It could go the same way as other 'bonus' accounts, where the rate gradually falls out of line. As a result, this account does not qualify for This is Money's best savings rates tables.

Bonus accounts which have fallen by the wayside include Birmingham Midshires Telephone Plus, Northern Rock Tracker Online and Select 120, Scarborough One Plus Saver and Abbey Esaver.

Birmingham Midshires Telephone Plus account, closed to new savers, pays 3.24% (4.05%) to those who have been in the account for more than 12 months.

Its Telephone Plus 2 pays 3.92% (4.9%), a rate boosted by a 0.85 point before tax bonus. But savers can switch to the better-paying accounts.

Northern Rock's Tracker Online comes with a headline rate of 4.17% (5.21%). But savers who have been in the account, launched in September 2001, for more than six months earn a much more sober 3.6% (4.5%).

The bank's Select 120 account comes with a headline rate of 3.84% (4.8%) which drops to 3.24% (4.05%) after six months. Savers in this account have to give 120 days' notice to withdraw their money.

The latest version of Scarborough's One Plus Saver account pays 4.08% (5.1%), while those in earlier versions get a much lower 3.28% (4.1%) before tax. And savers are restricted to three withdrawals a year.

Abbey Esaver, launched in July 2000, also pays a 0.5 point before tax bonus but only for six months. Loyal savers earn 3.48% (4.35%) before tax.

Savers in Cheltenham & Gloucester Bonus Tracker, launched in March, will earn 3% (3.75%) once the 0.75 pre-tax percentage point bonus expires. Money Mail recommends you steer clear of all of the above accounts and instead opt for one of our best buys, which come without any tricks. You can earn at least 3.88% (4.85%) or more on internet accounts from Yorkshire Building Society, ING Direct and Cahoot.

• PAUL HOMER, a long-term member of Scarborough Building Society, has found himself in a mediocre account because his bonus has disappeared and the society has failed to pass on the full increases in Bank of England base rate. Paul, pictured with his wife, Janice, opened a One Plus Saver account with the society when it was launched last August.

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It paid 3.2% (4%) after tax on a minimum balance of £1, or 3.28% (4.1%) at £5,000. But these rates included a 0.6 point before-tax bonus payable for six months.

Savers with balances of £5,000 still earn 3.28% (4.1%) - exactly the same as at launch. But Bank of England base rate has risen by one point since the account was launched. Paul has lost his bonus and has suffered a further blow because the society has passed on a mere 0.7 of a point of the one point rise in base rate to customers.

To add insult to injury, the society's latest One Plus Saver account - Issue 7 - pays 4.08% (5.1%) before tax, including a 1% bonus for six months.

Savers in past issues of the account are forbidden from switching over to the newer version.

Paul, from High Wycombe in Buckinghamshire, who runs his own business promotions company, says: 'This is a dreadful way for a mutual society to treat its loyal members.'

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