Don’t be fooled by bumper savings rates
A reader wrote to me recently, commenting on a blog I wrote several months ago about who to trust in the financial services industry.
He said: “In the end, the only person you can trust in money matters is yourself, and you need to take the time to understand the financial basics in order to make sensible judgments. People in this country in general have a tendency to blame anyone other than themselves. We are seriously lacking in financial knowledge.”
And yes, I couldn’t agree more. But – and there is a big but – while we have a responsibility as individuals to make sure we are financially aware, I do believe banks and other financial institutions have become increasingly shrewd when it comes to making the most of our ignorance.
Although everything is set out in the terms and conditions, this is often buried away in minuscule small print, so well hidden that unless you have perfect 20:20 vision (not me), you will struggle to find it.
Meanwhile, the hook that providers use to lure us in is practically screaming at us from every billboard, bank statement and newspaper advertisement we see.
Take HSBC’s newly launched Regular Saver, offering a whopping 10% gross interest fixed for 12 months – a rate unheard of since the credit crunch hit Britain.
But it comes with a catch: it’s only available to customers with an HSBC paid-for account (an HSBC Advance, HSBC Advance (Graduate) or HSBC Passport account).
All are fee-paying accounts, the HSBC Advance, for example, charges £6 a month for the first three months (nine for existing customers), after which you pay the full monthly price, currently £12.95. For the first year, then, if you’re a new customer, this account will cost you £134.55.
If you deposit the maximum £250 a month (£3,000 over the year), you’ll earn approximately £163 in gross interest after the year is up. After tax, that drops to £130.40 for a basic-rate taxpayer and £97.80 for a higher-rate taxpayer.
If you’re a higher-rate taxpayer and have only taken out one of these accounts to get your hands on the 10% savings rate, you’ll be left nearly £40 out of pocket.
The only other way you can get hold of the rate is to hold the HSBC Premier account, but this requires customers to have a mortgage of at least £300,000 with the bank, plus an annual income of £100,000, or £50,000 of savings or investments. I’m not impressed!
HSBC’s recent launch is part of a new trend where many competitive regular savers require customers to take out other products with the same bank.
Another two such accounts are First Direct’s Regular Saver, paying 8%, and Santander’s Super Fixed Monthly Saver, which pays 6%. For both of these you need to take out one of the same bank’s current accounts to qualify for the rate.
Although, unlike HSBC, these accounts don’t charge fees, they still require new customers to change their current accounts for a deal which will then only last for 13 months (Santander) or 12 months (First Direct).
Last year, only 6% of consumers switched their current account, according to the Office of Fair Trading. Banks are aware of this customer inertia and are therefore happy to launch these types of loss-leading savings accounts in a bid to attract more customers – who are then likely to remain loyal to the bank and boost its coffers.
We all want to find the elixir of high savings returns, but while the base rate is so low (although most experts predict it will rise by the end of the year), earning a decent amount from our savings will remain a challenge.
There are no secret potions or magic remedies. While top rates such as the ones from HSBC sound great, unfortunately in most cases, they only work well for existing customers.