Beware poor internet savings traps

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

 

Just because your savings account is run over the internet doesn't mean it's a good deal.

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Not so easy: easily accessed internet accounts are not always a good deal

Although you can get 6.5% plus before tax on internet savings accounts, there are plenty of truly rotten deals on the net. Our research reveals you can earn half that in some internet accounts.

Worst culprits paying poor returns on internet-based accounts are the banks: Barclays, HBOS (Halifax Bank of Scotland) HSBC, Lloyds TSB and NatWest.

By switching to a better-paying account, you could earn as much as £230 extra before tax interest a year on £10,000 savings.

Barclays pays just 3.14% after savings tax (3.92% before tax) on its e-savings account. Its newer e-savings Reward advertises a higher 4.12% (5.15%) but there is a catch. You do not earn any interest in any month you make a withdrawal.

HSBC Online Bonus Saver also docks your interest in any month you make a withdrawal, so you only earn 1.98% (2.47%) in any month you take money out of your account.

Lloyds TSB Online Saver pays just 2.96% (3.7%) to anyone who has been in the account more than a year. Even those who have opened an account in the past year and qualify for the 0.4% bonus (0.5%) earn only 3.44% (4.3%).

Its newer Internet Saver also pays poor rates starting at just 2.6% (3.25%) on balances up to £2,500 rising in stages to 3.6% (4.5%) at £10,000. NatWest e-savings pays 3.44% (4.3%).

Halifax added a huge bonus to its Web Saver account, which comes with a cash card, earlier this year. But it has since disappeared and you now earn just 3.37% (4.21%). Birmingham Midshires e-Saver Account (Issue 2) comes with a headline rate of 5.06% (6.33%) with interest paid monthly.

But the bank, where the deposit taker is also Halifax Bank of Scotland, has a string of closed accounts where savers really lose out. Its Internet Access Issue 1 account pays 3.44% (4.3%).

And even in Issue 6 of this account launched last year, savers earn 3.96% (4.95%) but only if they still qualify for the 0.65% before tax bonus paid for the first year. The AA Net Saver launched in July last year pays 4.28% (5.36%) but once the 12-month bonus of 0.8% is stripped out, savers earn a lower 3.65% (4.56%).

If you are in its Internet Saver issues 1 to 3 your rate is just 3.45% (4.31%).

As with Birmingham Midshires, AA and Halifax, the bank taking in your money is Bank of Scotland.

Alliance & Leicester's latest internet account, Esaver, comes with a headline rate of 6.5% before tax, including a 0.8% bonus. But it pays savers in its older internet accounts as little as 3.4% (4.2%).

Other poor payers include Northern Rock Tracker Online once the 1% (1.24%) bonus has run out, Abbey eSaver, if you no longer qualify for the 0.75% (1%) bonus and Smile. All three pay 3.6% (4.5%) or less.

the worst accounts table

Plus: Abbey cuts rates on top accounts

Abbey has cut rates on some of its popular savings accounts. The drop comes even though there has been no change in the Bank of England's 5% base rate.

Savers in its Flexible Saver, Postal Account, Esaver, Easy Isa and Branch Saver have seen their rates cut by 0.2% before tax. They earn just 3.6% tax free in the bank's Easy Isa on sums up to £6,000 and 4.1% on £10,000 - well below the best rates on offer from other banks and building societies.

The bank has cut the rate by 1% in the past 12 months against a 0.75% fall in base rate.

Even worse is the Postal Account where rates have dropped by as much as 1.2% in the past year. It now pays a meagre 2.48% after savings tax (3.1% before tax) on £5,000.

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Those in its easy access Flexible Saver have also seen big cuts of 1.15% against the 0.75% cut in base rate. They now earn 2.24% (2.8%) at best on balances up to £10,000.

Its Branch Saver pays just 2.48% (3.1%) on savings up to £10,000 even if you leave your money untouched for a year. If you make between seven and 12 withdrawals from the account, the rate plummets to 1.64% (2.05%).

Abbey has also cut rates on three of its accounts now closed to new savers - Direct Saver, Postal Isa and Remote Isa. Direct Saver, once a top paying account, now pays just 2.24% (2.8%) on sums up to £10,000.

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