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Savings - Bonus bonanza

The last two months has seen a boom in the variable rate savings market, with rates rising and new savings accounts being launched to top the savings best buy charts.

The savings market is booming, and with rates to be found at 0.75% above the Bank of England base rate, it’s a great time for savers to review their accounts. Fierce competition is driving savings accounts rates forward, but there has got to be a point at which it is unprofitable to offer these deals, and it’s unlikely that many of the top rates are sustainable.

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Bradford and Bingley led the field at the start of the boom pushing savings account rates to a market leading 6.40% on its no strings internet savings account. But as the first to rise, they are now also one of the first to fall. Only last Thursday Bradford and Bingley withdrew the market leading Internet Saver, replacing it with the new eSavings issue 5 paying a lower rate of 6.20%

This combined with the announcement last week that Barclays had cut rates on its savings range by up to 0.25%, and only a week prior the market leading Cash ISA from Tipton & Coseley dropped its rate by 0.10%. This sparks fears that the boom was only short lived, and that perhaps the savings account market may have reached its peak and has gone beyond what is sustainable.

But this is only half of the picture, as providers begin to use another tactic to maintain these high paying savings accounts. The attention has turned from offering competitive rates on no strings savings accounts to savings accounts with bonus conditions.

Offering high savings account rates with either bonuses or restrictions is a more affordable way to compete. Meaning either that the ‘inflated’ savings account rate is only guaranteed for a limit period, or reducing costs by limiting withdrawals or access rights for example.

Don’t be sucked in by the headline savings account rate without first finding out the full conditions. Often the extra you receive in interest is a short-term gain and is quickly outweighed by the effort of becoming a savings account rate tart. Looking into the future, a slightly lower, yet sustained rate may offer better returns, and our new most consistent savings accounts best buy charts provide a clear indication of the best performing products over the last 18 and 36 months.

Headline savings account rates are being used as bait to hook in savers, hoping that, once they’ve bitten, they will stay beyond the introductory period. But with savings account rates as high as 6.30% on a no notice savings account, these rates seriously compete even with the bonus savings accounts and don’t have a written in condition that the rate can fall within 6-12months.

Don’t take a savings account deal at face value. Ensure you know the exact terms of the savings account before signing up.

Savings accounts best buys