'Top' payers that can cost you dear

By SYLVIA MORRIS, THIS IS MONEY AND DAILY MAIL SAVINGS EXPERT
Updated: 19:00 EST, 1 July 2003

SAVERS are being tempted with headline rates of 4.5% before tax, but you need to look behind the rate and decide whether you can stick with the tough terms and conditions on the account.

The Portman Building Society's Bonus Extra account is typical. This highlights a 4.5% interest rate, though this is whittled down to 3.6% after 20% savings tax has been deducted.

And the 4.5% before tax figure includes a 0.75% before tax bonus paid until 31 January next year. Stripping out the bonus, savers earn 3% after 20% savings tax (worth 3.75% before tax) on a minimum £2,500.

On the plus side, the account comes with a guarantee that it will match Bank of England base rate (currently 3.75%) until 31 January, 2005. But you have to give 75 days' notice of any withdrawals you want to make rather than having easy access to your money.

If you want money quickly, then there's a huge penalty equal to 75 days' interest on the amount withdrawn - or one fifth of your annual interest.

If you make such a withdrawal, you will be better off in a top-paying, High Street, easy access account. Even if Portman cuts the rate once the guarantee runs out, you still have to give the 75 days' notice. Portman recently cut rates harshly in its Instant Access account for those with less than £2,500 in its Instant Access account.

Chelsea Building Society's new Double Guarantee 90 account, paying 3.56% (4.45% gross) on a minimum £1,000, gives a better all-round deal for long-term savers who can cope with the terms and conditions.

It guarantees to pay at least base rate plus 0.5% before tax for the rest of this year, currently worth 3.4% (4.25%). Next year, savers will earn at least base rate plus 0.25% before tax.

You have to give 90 days' notice of any withdrawals or face a fee equal to 90 days' loss of interest, equivalent to a quarter of the annual interest earned on the money withdrawn.

But Chelsea plays fair with savers. Once the guarantee disappears, it gives easy access to money so it can't trap savers in the account and cut the rate. Both accounts are available in the High Street.

Birmingham Midshires, which is owned by Halifax, has launched Telephone Tracker, paying 3.48% (4.35%) on a minimum £5,000 and guaranteeing to pay at least the Bank of England base rate plus 0.5% before tax for a year.

This pledge puts the minimum it can currently pay to 3.4% (4.25%) but you can only make two withdrawals from the account in the first year.

After the year, you earn its Telephone Easy Access account rates - which are lower. If you go for this account, you need to review it after 12 months.

So what are the alternatives? Cash mini Isas pay good rates, give you easy access to your money and the interest is tax-free.

Top taxable telephone accounts with unlimited easy access to your money include Chelsea Call Direct Advantage (minimum £2,500) and Cheltenham & Gloucester (minimum £100) both at 2.8% (3.5%). Both come with a guarantee to pay a before tax rate of no less than base rate less 0.25%.

Intelligent Finance pays a higher 2.98% (3.7%) and newcomer ING Direct 3.44%(4.3%) but neither has a guarantee.

Best High Street accounts with easy access include Bradford & Bingley Premier Saver (minimum £2,500), Alliance & Leicester EasySaver (minimum £1) and Tesco Savings (minimum £5,000) all at 2.4% (3%). Tesco pays higher rates for £15,000 plus.