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The top savings accounts that come with big restrictions

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Written by: Paloma Kubiak
28/07/2016
It's little wonder that with interest rates so low savers need to make their money work harder. Here we list the big catches associated with many of the top paying accounts that may be tempting beleaguered savers.

As savers braced themselves for a cut in interest rates last week, now it seems there is potential for them to dip into negative territory.

However among the low interest rates being offered by high street lenders, there are some challenger banks and lesser-known providers offering higher than average returns, although each come with a hefty caveat.

Exclusive analysis for YourMoney.com by independent research firm Savings Champion found the top interest rate savings accounts are often restricted to locals or existing customers, can only be opened in branch or they’re not covered by the UK financial compensation scheme.

This means new customers may need to travel hundreds of miles to open an account or to provide security information in person, or forego UK protection on their deposits if things were to go wrong.

Top rates on easy access accounts

The average interest rate on easy access accounts stands at 0.65% (both live and closed) yet Newbury Building Society offers 1.90% gross AER in its Existing Members Account for those who’ve banked with it for at least a year.

For new customers, only locals living in certain postcodes can open its Welcome to Newbury easy access account paying 1.65% gross AER on deposits between £50 and £3,000. With both, you can only apply in branch, though the accounts can be accessed in branch, online or by post.

RCI Bank Freedom Savings Account gives 1.45% gross AER on balances of between £100 and £1m.

While it can be opened and accessed online, RCI isn’t covered by the UK’s Financial Services Compensation Scheme (FSCS). It’s owned and operated by Renault in France and doesn’t have a UK banking licence so instead, deposits up to €100,000 with an institution are covered by the French FSCS equivalent – the Fonds de Garantie des Dépôts et de Résolution (FGDR).

Susan Hannums, director of Savings Champion, warns that other schemes across the world will differ “so it’s important to understand the levels of protection you have if you have money held elsewhere”.

In the modern banking age other providers insist you open the account by post; such as Tipton & Coseley Building Society (1.25% gross AER on its Wolves Saver, minimum £50,000) and Stafford Railway Building Society (1.25% gross AER on its Pullman account, minimum £100,000).

BSOC.EASY ACCOUNT THUMBNAIL Click to see the full table.

Top rates on notice accounts

The average interest rate on notice accounts stands at 1.05% (both live and closed) but Turkish Bank’s 90 Day Notice Account pays 1.70% gross AER on balances between £1,000 and £250,000. You can apply and gain access to the account in branch (London) or by post.

With Ecology Building Society’s 90 Day Notice Account, it offers 1.25% gross AER but you need to open the account by post and it’s only available with a starting deposit amount of £25,000, restricting those with more modest savings.

Contender Charter Savings Bank offers a 95 Day Notice Account (issue 9) at 1.55% gross AER with a minimum deposit amount of £1,000 and it can be opened and operated online. However, fall below a £1,000 balance and you’ll get just 0.10% gross AER.

BSOC.NOTICE ACCOUNT THUMBNAIL Click to see the full table.

Top rates on Variable Rate ISAs

On all variable rate ISAs, the average saving interest is 1.11% gross AER (both live and closed).

Wesleyan Cash ISA offers 1.65% gross AER on a minimum balance of £9,000 – below this amount the interest is tiered, down to 0.10% gross AER.

Danske banks offers an attractive 1.60% gross AER, though the minimum balance is £30,000. This product can be opened in branch or by phone, as long as the saver’s over the age of 18.

While the Al Rayan Bank’s Notice cash ISA offering 1.55% gross AER can be opened online, by post, over the telephone or in branch, it may be restrictive for savers as it’s a Sharia compliant account.

These savings accounts comply with Islamic law but are available to any savers. Sharia law states that money has no intrinsic value so neither party can profit from an exchange of money, so payment and receipt of interest is forbidden.

Instead, they pay an ‘Expected Profit Rate’ which is the level of profit paid by the provider to the saver.

Hannums says: “The provider will invest deposits and use the profit generated by the investments to provide the Expected Profit Rate and due to this, there is an element of risk attached to depositing funds in these accounts. Having said that, providers are keen to state that Expected Profit Rates are usually achieved and most providers allow you to take funds away early if the Expected Profit Rate is not likely to be achieved, rather than having to accept a lower profit rate.”

She adds that it’s worth checking the provider’s track record in achieving profit rates in the past and to ensure they are covered by the FSCS or equivalent if you have any concerns.

Paying lower interest than those above but more than the average is Nottingham Building Society. Its Reward ISA pays 1.36% gross AER on a minimum £30,000 deposit and it can only be opened and operated in branch, which could be hundreds of miles from where you live.

BSOC.VARIABLE ACCOUNT THUMBNAIL Click to see the full table.

‘Best buy tables have become a maze of accounts for savers’

Hannums says restricting accounts to local savers only is not a new trend, but can be frustrating for those who can’t access the rates.

“Providers may like to support their local savers, but it’s more likely a way to stem the flow of applications and business, where necessary, especially in the current low interest rate environment. This restriction is great for those who live locally, making those savers feel their provider is supporting their local community and savers, but can be particularly frustrating for those who live outside the geographical area. Worst still can be those who are restricted to branch only, when branches can be several or even hundreds of miles away.

“There are still competitive accounts to be had however, that are not restricted, with the best buy tables littered with new and possibly unfamiliar providers, that many savers may be less comfortable saving with. Added to the different protection schemes and sharia compliant accounts, the best buy tables have become a maze of accounts for savers to find their way through.”

Niche lender rates not as attractive as they first appear

Andrew Hagger of MoneyComms says more often than not, if a rate looks too good to be true, there will be a catch – either non UK FSCS scheme or geographically limited.

“It’s not unusual to find less familiar and niche providers paying higher than average rates, but often there’s a downside to these accounts – sometimes there’s no UK FSCS protection in place – something that will put a lot of savers off even if they are being offered a slightly better rate – for many people safety of their cash is paramount.

“Smaller regional building societies understandably are trying to offer the best rates to customers in their area – they restrict these accounts by only making them available in branch (not online) or by specifying that applicants must come from specific postcode areas.

“Another way of reducing demand is to insist on a high minimum balance of say £20,000 plus – again this will keep demand lower.”

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