Savers warned over plummeting returns from ‘bonus’ accounts
Savers must move their money to new accounts before the bonus rates paid on their accounts drop, or risk earning virtually no interest.
New analysis from Investec focuses on the top 50 instant access savings accounts for balances of £5,000. It found that four of the top accounts boast bonus rates, where the returns on offer to savers are inflated for a set period.
But if savers don’t shift their cash to new accounts after those bonuses finish, they will be stuck on accounts paying pathetic rates.
Relying on a bonus
The Investec study found that the average gross AER paid by these four bonus-paying accounts was 0.275%.
However, this return is almost entirely reliant on the bonus rate, which stands at an average of 0.265%, and lasts for an average of 12 months. That means that the bonus makes up a whopping 95% of the total initial return.
Once these bonus periods end though, the average interest paid by these accounts plummets to just 0.01% however, potentially leaving savers who don’t move their money away earning virtually no interest at all.
This is likely to happen, too. Investec’s study found that while two thirds of people with cash savings between 2016 and 2019 opened accounts paying short-term bonuses, fewer than half (42%) moved the money once the bonuses expired.
Samantha Booysen, head of digital savings at Investec, said that while there is nothing wrong with savings accounts paying bonuses, it’s vital that savers are aware of the size of those bonuses and when they will expire.
She added: “Once they do, the accounts invariably drop out of the best buy tables so they may want to consider moving their savings.”
This was echoed by Andrew Hagger, founder and director of MoneyComms who conducted the research, who continued: “Savers need their wits about them to benefit from accounts with bonuses, providers are banking on some customers failing to switch away when the rate plummets after the intro period.”
Boosting our savings pots
The pandemic has been a boon for the nation’s savers, with the latest figures from the Office for National Statistics showing that the amount of money available to UK households to put away in savings hit a new record high last year.
The surprise drop in inflation last month was also welcomed by savers. According to financial information site Moneyfacts, it meant that there were 387 accounts offering an inflation-beating return, though just 23 offered easy access.