Behind the headline

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

 

INVESTORS seeking a safe, lucrative home for their cash with banks and building societies need to look closely behind the headline rates to make sure they are not being lured into an unsuitable account.

Banks and building societies have a host of ways to make their savings rates look attractive.

Tricks of the trade include shortterm bonuses and long-term withdrawal restrictions which penalise loyal savers, whether they run their accounts through the branch or by post, telephone or internet.

The recently launched savings account from cahoot, the internet bank owned by Abbey National, has a headline rate of 4.3% before tax (worth 3.44% after 20% savings tax). With Bank of England base rate at 4%, it is an exceedingly generous rate - but it could be cut at any time.

And you earn this rate only if you do not make any withdrawals in a month, so it is not appealing to savers who regularly switch money between savings and current accounts. If you do, the rate drops to 3.9% (3.12%) for that month.

First Direct Bonus Savings, which you can operate over the telephone or internet, pays 3.85% (3.02%) - but only 2.60% (2.06%) in any month you make a withdrawal. If you take money out of these two accounts regularly, you will be better off with internet accounts where the interest stays the same, however many transactions you make.

Halifax Websaver pays 4.05% (3.24%), while Egg Internet and Yorkshire Building Society E-Saver pay 4% (3.2%) and come with a long-term guarantee that they will match base rate.

Other top rates may include a temporary bonus which lasts for six months after you open the account. Once the bonus goes, you could be left in a lacklustre account.

Abbey National's esaver account pays 4.25% (3.4%) - among the very best rates for internet-based accounts - but this includes a 0.5% bonus payable only for the first six months. After this, your rate will drop to 3.75% (3%), and the bonus is variable so it can be cut at any time.

Other accounts penalise you if you make withdrawals.

In the High Street, with Abbey National Branch Saver easy access account, you earn 2.4% (1.92%) on

deposits between £500 and £10,000 only if you do not make a single withdrawal from the account in a year. If you make just one, your annual rate tumbles to 1.75% (1.4%).

Halifax branch account Saver Reward pays 2.05% (1.64%) on £500, rising to 2.35% (1.88%) at £25,000. But if you make more than three withdrawals from the account, the rate drops sharply to as little as 0.55%.

Better deals include Alliance & Leicester EasySaver account at 3.5% (2.8%) on £1-plus, and Bradford & Bingley's Premier Saver at 3.15% (2.52%) on £2,000 or more.

Top rates on telephone accounts which are not boosted by bonuses or come with withdrawal restrictions include Cheltenham &

Gloucester Tracker at 3.85% (3.08%) and Intelligent Finance at 3.8% (3.04%).

If you are in an old-style bonus account, move. These accounts, launched in the early Nineties, are past their sell-by date.

They pay a bonus if you leave your money untouched for a year. They also demand you give notice before you withdraw your money, and can be extremely poor value compared with easyaccess money.

But timing is important - you will lose the bonus if you close the account during the 12-month bonus period.

Despite its name, Halifax Bonus Gold branch-based account pays just 2.5% (2%), including the bonus, on a balance of £10,000. If you make more than one withdrawal a month, the rate drops to 2% (1.6%).

This is lower than the 3% the bank pays its current account holders putting in £1,000 a month.

If you are happy with withdrawals restrictions, move to West Bromwich Direct Tracker Saver account, which you can run through the post or over the telephone.

• PRIMARY school teacher Angela Rockland opened a savings account with Intelligent Finance earlier this month.

Angela, from Bo'ness in West Lothian, Scotland, and Richard Steward, a chef, got engaged at Christmas and are saving for their wedding in July next year.

They earn 3.04% interest on the account after savings tax. Angela, 24, says: 'With this account I can switch money from my current account over the telephone whenever I want, without charge. I wanted an account that pays a decent rate of interest but has also paid a consistently good rate. I don't want to chop and change accounts, or have any restrictions on when I can put money in and take it out.'

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