Beware of rate-boosting tricks

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

 

Banks and building societies continue to use marketing tricks linked to seemingly attractive interest rates to dupe savers.

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The AA'S new internet-based account pays a headline rate of 4.49% after 20% savings tax (5.61% before tax) on £1 or more, ranking it alongside top payers Northern Rock and Icesave. But the rate is boosted by a bonus of 0.64% (0.8%) paid for just 12 months. Then it drops to 3.85% (4.81%), a poor deal for an internet account.

Both Icesave's 4.56% (5.7%) and Northern Rock Online Silver Savings' 4.65% (5.81%) are 'clean' rates that are not propped up by a bonus. And they come with a long-term guarantee linking them to the Bank of England base rate.

Northern Rock promises a before-tax rate of at least base rate, currently 5.25%, until January 31, 2010 while Icesave, run by Icelandic bank Landsbanki, pledges base rate plus 0.25% until October 1, 2009 and then base rate until October 2011.

Among the worst with nasty terms and conditions are Alliance & Leicester DirectSaver, First Direct e-savings and HSBC Online Saver. With all three accounts, you will earn no interest at all in any month you make a withdrawal.

If you take money out three times a year in different months, then with HSBC Online Saver as a basic-rate taxpayer you would then pay a charge of £19.17 a time - a total of £57.50 - on a £5,000 balance, bringing the rate down to 3.45% (4.31%) for the year, and not the advertised 4.6% (5.75%).

Alliance & Leicester savers would see 3.39% (4.24%) and not the 4.52% (5.65%) headline rates. Birmingham Midshires WebSaver combines a bonus to boost the rate - to 4.56% (5.7%) in the first year against a longer-term rate of 3.96% (4.95%) - and limits you to six withdrawals a year.

Cheltenham & Gloucester's Guaranteed Branch Saver account advertises 4.4% (5.5%), but you lose 30 days' interest on each withdrawal. The new Barclays Savings Builder, a branch-based easy access account which a competitive headline rate of 3.6% (4.5%) at £10,000) pays you less interest on your savings in any month you take money out.

You end up with 2.16% (2.7%) in that particular month. Make one a month and you earn 2.16% (2.7%) for the year, and not the advertised 3.6% (4.5%).

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