Top rates won't last for ever

By SYLVIA MORRIS, THIS IS MONEY AND DAILY MAIL SAVINGS EXPERT
Updated: 06:08 EST, 12 January 2005

SAVERS need to watch their accounts closely once the guarantee to pay a promised level of interest runs out. Banks and building societies are then free to whittle away at the rate.

Guarantees give savers the comfort of knowing their rate will not move out of line so they will not find themselves in a lousy account. These pledges typically run for six or even 12 months. But, like all guarantees, they do run out.

Often banks and building societies will replace an outgoing guarantee with a new version - but not always. The start of a new year is when savers have to be particularly wary. The end of the year is a popular time for such guarantees to run out.

Sainsbury's Bank Direct Saver, which you run over the telephone or over the internet, guaranteed to pay at least 4% after 20% savings tax (5% before 20% savings tax) on a minimum £1 until January 5.

But now the guarantee has been extended, but only to February 11. The bank has launched its new internet-only account also paying 4% after tax (5%). Other guarantees to go include Skipton's Branch Saver which pays an attractive rate of 3.6% (4.5% before tax).

Those coming near to their run-out date include Intelligent Finance's attractive cash mini Isa paying 5.1% tax-free. This guarantees base rate, currently 4.75%, plus 0.3 percentage points until the end of January. But the guarantee is now under review.

Good long-term guarantees include Britannia Building Society DirectSaver telephone account, minimum £1,000. It will at least match base rate before tax until July 31, 2006.

Capital One pays a similar rate guaranteeing the base rate until March 31, 2007, but you need a higher £2,000 minimum. ING Direct pays a higher 4% (5%) on a minimum £1 but does not come with any guarantee. But it has paid a consistently good rate since its launch 20 months ago.

One of the best deals for savers with a substantial deposit and aged 50 or over is the Northern Rock Silver Savings which you can run through its branches or through the post. It pays 4.18% (5.22%) and guarantees to at least match base rate until January 1, 2010.

There are better deals for savers willing to use the internet than the new Sainsbury's account. Bradford & Bingley eSavings pays 4.2% (5.25%) on a minimum £1,000 with a guarantee to match base rate at least until the end of the year.

Yorkshire Building Society's ESaver pays slightly less at 4.16% (5.2%) on £250 plus - but has a no-time-limit guarantee to match base rate. Egg pays a lower 3.8% (4.75%) and also pledges to pay base rate until December 31, 2007.

With the exception of Northern Rock, top-notch guarantees are harder to find in the High Street. Woolwich Branch Saver, minimum £1,000, at 3.08% (3.85%) promises to move up in line with any base rate rise this year but limits the number of withdrawals on the account to six a year.

Abbey Flexible Saver at 2.84% (3.55%) will also move in line with base rate but only until April 2005.

Bristol & West's Easylife guarantees to match base rate for six months (during which time you can only make two withdrawals) and no lower than 1 percentage point below base rate on £500 or more. There is a limit of 12 withdrawals a year.

Bradford & Bingley's Premier Saver pays 3.04% (3.8%) on £2,000 with no withdrawal restrictions.

JOE DODD, 61, pictured with his wife Linda, 54, opened a DirectSaver telephone-based account with Britannia Building Society, attracted by a combination of a guarantee on the interest rate and easy access.

Wigan-based Joe who runs his own business advising companies how to save on electricity and gas bills, opened the account with a windfall and then added a small sum he still had in his Halifax account which was paying less than 0.75% after 20% savings tax.

He says: 'We needed to spend money on doing up our new home so easy access was important. I looked at my existing Halifax account and was shocked by the low interest rate, so I did not add to that.' Britannia pays 3.8% after 20% savings tax (4.75% before tax) and guarantees to match base rate until July 31, 2006.You earn an extra 0.3 percentage points for three months if you open the account before the end of this month.