Watch underlying bonus savings accounts interest rates, says financial expert

News - Savings

Written by Ray Clancy

Tuesday, 16 November 2010 09:33

Bonus rates make for good headline figures in the competitive savings account market but savers are being urged to check the small print before committing themselves.

Instant access savings accounts and cash ISAs regularly offer an introductory bonus rate of interest for opening an account that can be up to 80% of the overall rate on offer but it is the rate once the offer runs out that should be examined, according to Julie Smith, head of savings at Fair Investment Company.

Many could be in for a shock, she warns. ‘If you are considering a savings account paying a bonus rate, and the bonus should apply for at least six months, make sure you know what the rate is after the bonus,’ she said.

In most circumstances, once the rate of interest drops, your bank or building society will write to you, however, she says this depends on what type of account you have and how large the fall is.

She points out that payment accounts, some flexible savings accounts and current accounts are governed by European Union wide regulations and you will be notified two months in advance of any changes. In the UK the Financial Services Authority rules state two months as this is deemed sufficient notice to allow customers to switch or close their account without penalty.

‘But if it is a non payment account it is covered by FSA rules and you will only be personally notified where the change is considered of a material nature,’ said Smith. ‘That is defined by the industry as the rate falling in one go by more than 0.25% and where the account balance is £500 or more, or if the rate falls by 0.5% over the course of 12 months,’ she explained.

‘So it is vital that you make sure any bank or building society you deposit savings with has up-to-date contact details for you,’ she added.

She has also found that when it comes to savings, a lot of people suffer from inertia, so she urges people who don’t think they’re likely to be moving their money around all of the time to look for an account that pays a consistent rate they’re happy with.

‘Normally the higher, consistent rates on offer are fixed term savings which involves locking your money away for a set period. In exchange for that, rates can be as high as four per cent annually depending on how long you are willing to lock your money away for and how much you are investing,’ Smith said.

‘But even with a fixed term account, you need to make sure you totally understand the terms and conditions, because when a fixed term account comes to the end of its term you could find your savings rolled over into another fixed term account at a different rate or into a current account paying little or no interest,’ she added.