Save, make, understand money


Teaser bonuses on savings accounts could leave you unsatisfied

Joanna Faith
Written By:
Joanna Faith

Savers looking for the most competitive deals are being warned about accounts offering controversial ‘teaser rates’.

Banks and building societies use bonus rates to entice new customers. The bonus is handy for savers as it is guaranteed for an introductory period – typically six months or one year –  and acts as a safety net, even if interest rates are cut.

However, when the bonus period expires, the rate often plummets, leaving some savers making next to nothing on their cash.

New figures from rate watcher Moneyfacts show the average rate on bonus accounts has fallen from 0.84% to 0.63% in the past 12 months. It also shows 15 of the 22 accounts available today will pay less than the Bank of England Base Rate of 0.25% after the bonus expires, with the average account paying just 0.18%.

Some accounts will pay a measly 0.05% when the bonus ends.

According to Moneyfacts, none of the largest high street banks would pay a return of 0.25% or more and only four providers – Post Office Money, Skipton Building Society, Tesco Bank and West Brom Building Society – would pay 0.25% or more after the bonus vanishes.

West Brom currently tops the best buy easy access bonus account list. It pays 1.05% with a 0.35% bonus until 31 May 2018. When the bonus expires, the rate plunges to 0.70%.

The next best deal comes from Post Office Money, which pays 1.01% including a 0.76% bonus for 12 months. Savers will earn just 0.25% at the end of the ‘teaser’ period.

Rachel Springall, finance expert at Moneyfacts, said: “Clearly it’s important to compare these accounts to bonus-free best buys, especially as challenger banks have continued to climb to the top of the market recently.

“However, the guarantee of a bonus could still attract some savers, particularly those who want easy access to their cash and are wary of more rate cuts to come.”

She also suggested diarising when the bonus rates expire.

“It’s vital that anyone considering a bonus account makes note of the expiry date so they don’t end up on a rate paying next to nothing. They would be wise to make preparations to switch in advance and not leave it too long to start the process.”

Bonus accounts were scrutinised by the Financial Conduct Authority (FCA) in 2015 and banks and building societies were criticised for not always making it clear to savers when the bonus expired.

The FCA stopped short of banning ‘teaser rates’, saying they “have an important role to play in encouraging switching”.

Soon after the regulator’s probe, a number of ‘teaser rate’ accounts were removed from the market leaving very few options for savers.