WATCH out for savings accounts with tempting names that mask poor interest rates which cost you £100s in lost returns.
If you move your savings to new accounts regularly, you could be forgiven for assuming you are getting a competitive rate.
But simply shifting your cash doesn’t guarantee you a decent interest rate.
Many banks and building societies have savings accounts that are open to new customers and marketed with appealing names such as the “Reward Saver” or “Smart Saver”.
But often, these pay a pitiful interest rate, thereby swindling you out of the competitive interest rate you could get elsewhere – somewhere with a more straightforward name.
“Some savings accounts are totally out of kilter with the best buys and these ultra-low lame rates could be costing you a packet in terms of lost income,” explained Andrew Hagger, founder of MoneyComms.
“It’s time to dump these savings accounts and sign up for something that doesn’t rob you of a decent interest reward.”
Swindler accounts are designed to help banks make a profit from savers who don’t shop around.
They are mainly used by people who may already have other accounts with the same bank and are looking for a simple new home for their savings.
“The high street banks pay some of the lowest rates on the market – as they rely on their brands to attract customers,” says Anna Bowes co-founder of Savingschampion.co.uk.
Opening an account with your existing bank may be the easiest option but it is highly unlikely it is the best option. To get the best rate on your savings you need to shop around.
Setting up a savings account with a bank or building society you haven’t used before will involve some extra hoop jumping but when it could add hundreds of pounds to your bank balance it is worth it.
For example, Sainsbury’s Bank pays just 1.3% on its Extra Saver and eSaver Special – there’s nothing special or extra about that rate.
In contrast the best buy easy access account pays 5.1%. On a £5,000 balance, Sainsbury’s Bank customers would be missing out on £190 interest a year.
All these accounts pay well under inflation. The UK inflation rate is currently 2%.
That means the cost of all the things you buy is rising by an average 2% a year.
If your savings aren’t growing by at least that rate they are effectively shrinking.
For example, £100 in the worst savings account with Punjab National Bank would be worth £100.75 after a year.
But by then, thanks to inflation, you would need £102 to
buy the same things you could have bought with £100 the year before.
So, at the very least you need a savings account paying more than 2%.
But at the moment you can get accounts paying far, far more.
Stick your money in the highest paying accounts and you could get growth of 5% a year so your savings growth would significantly outpace inflation.
It is particularly infuriating to see a National Savings & Investments (NS&I) account appear in the list of swindlers.
As a government-backed bank operated by the Treasury it should be setting an example, instead it appears amongst the worst
swindler accounts out there.
“The Nation’s favourite, NS&I, rarely pays the best rates on offer but it has an old account called the Investment Account which pays just 1% – well below inflation,” says Bowes.
For someone with £5,000 in savings they lose out on £205 a year compared to the best buy account.
“If this doesn’t sound appealing, there are accounts with other providers that you can open by post and they pay more,” said Bowes. “The Family Building Society Market
Tracker Saver pays 4.81 %AER – and although the number of withdrawals from this account is restricted, it’s 20 a year.”
If you are on the hunt for a good savings rate, make sure you look at the terms and conditions.
Many of the accounts that sit at the top of the best buy tables for easy access accounts have a sting in their tail.
You’ll only get that tantalising interest rate if you limit your withdrawals. These are limited access accounts, which often appear in the easy access tables.
Make more than a set number of withdrawals a year – usually three or four – and your interest rate will plunge.
For example, TSB offers a Save Well account. It pays 3.68%, but only in months where you don’t make any withdrawals.
Access your cash and the rate drops to an awful 0.49% for that month.
Similarly, Barclays Bank’s Reward Saver, is advertised as an easy access account paying 2.75%.
But you only get that rate in months when you don’t make any
withdrawals.
Have the audacity to withdraw money from your easy access account
and the interest rate falls to 1% for that month.
IF you want to get the best possible rate for your savings – and potentially earn £100s more interest you have to put in the legwork, says Laura Suter, director of personal finance at AJ Bell.
“Anyone who wants to get the best savings rate should shop around – searching on trusted comparison sites to find the best rate possible.
They can filter their search if they want to bank via post or in branch, and while they will usually get a lower rate, they should still ensure they are getting the best rate for them.”
Also, be prepared to bank with an unfamiliar name.
“It’s often the smaller, start-up or challenger digital banks that offer the top interest rates for savings, as they are more hungry for new business and need to draw more customers in,” says Suter.
“They can’t rely on brand recognition or an existing big
bank of customers, so they have to offer higher rates.”
As long as a bank is registered with the Financial Conduct Authority (FCA) they will be covered by the Financial Services Compensation Scheme (FSCS) which protects deposits of up to £85,000 per person if the bank goes bust.
Want a straightforward savings account that pays you a competitive interest rate without any hidden hoops for you to jump through. The good news is they do exist.
If you are happy banking via your smartphone then Chase’s Saver Boosted Rate Offer pays 5.1% with no limit on withdrawals.
Want to be able to check your balance and bank via your computer?
Then try Cynergy Bank. It pays 4.94% on its Online Easy Access account.
If you want to be able to open and manage your savings in branch, then try your local building society.
There are several with competitive savings rates of 4.6% to
4.85% including Kent Reliance, Family Building Society, Scottish, Monmouthshire, Cambridge and Principality.
Need to open and operate an account by post? Yorkshire Building Society’s Rainy Day Account pays 5% but you can only make two withdrawals a year.
Alternatively, Family Building Society’s Market Tracker can be operated by post and pays 4.81%, provided you don’t make more than a generous 20 withdrawals a year.
Or for completely unlimited withdrawals and postal access Post Office Money pays 4.1% on its Instant Saver.
SWITCHING bank accounts is a simple process and can usually be done through the Current Account Switch Service (CASS).
Dozens of high street banks and building societies are signed up – there’s a full list on CASS’ website.
Under the switching service, swapping banks should take seven working days.
You don’t have to remember to move direct debits across when moving, as this is done for you.
All you have to do is apply for the new account you want, and the new bank will tell your existing one you’re moving.
There are a few things you can do before switching though, including choosing your switch date and transferring any old bank statements to your new account.
You should get in touch with your existing bank for any old statements.
When switching current accounts, consider what other perks might come with joining a specific bank or building society.
Some banks offer 0% overdrafts up to a certain limit, and others might offer better rates on savings accounts.
And some banks offer free travel or mobile phone insurance with their current accounts – but these accounts might come with a monthly fee.
