The hidden catch to instant access accounts
No notice savings account are popular among savers but with almost 25% penalising you for making withdrawals, having instant access often comes at a price.
According to research by Moneyfacts, almost a quarter of accounts that promise instant access come with strings attached.
For example, many reduce or pay no interest in the month that a withdrawal is made while others restrict the number of withdrawals you are able to make.
Michelle Slade, analyst at Moneyfacts.co.uk, says: "Some of these accounts pay market-leading rates but just by making a few withdrawals a year, you could lose out on hundreds of pounds of interest.”
So, when picking an instant access account don't just look at headline rates - make sure you fully read the terms and conditions to ensure you don’t end up with a savings bond that isn’t suitable for your needs.
The accounts to watch out for:
Leeds Building Society’s Premium Access and Postal Max accounts allow up to two withdrawals a year but if you make a third then your account will be closed.
Meanwhile, Britannia Building Society’s Homesaver pays an attractive 7.25% AER and allows instant access but if you withdraw any money within the first six months then you will lose 90 days of interest unless the money is used for a Britannia Mortgage. Moneyfacts calculates that if you made five withdrawals on a balance of £10,000 then you would of lost a total of £563.72 in interest.
But these building societies aren’t the only offenders:
|Account||Withdrawal restriction||Interest lost (one withdrawal)||Interest lost (two withdrawals)||Interest lost (three withdrawals)|
|Abbey (eSaver Direct)||Rate reduces to 2.75% in month of withdrawal||£31||£93.75||£157.15|
|Alliance & Leicester (eSaver)||No interest paid for month of withdrawal except July.||£56.77||£167.60||£279.05|
|Citibank (Reward Saver)||No interest paid for month of withdrawal||£55.72||£164.53||£273.96|
|Halifax (Web Saver Extra)||One withdrawal free, all further ones subject to 30 days loss of interest||£0||£105.77||£210.48|
|Heritable Bank (Easy Access)||Six free a year, then 30 days loss of interest||£0||£0||£0|
|Birmingham Midshires (Online Saver)||No interest paid for month of withdrawal||£50.06||£149.46||£247.92|
|Manfield (Postal Tracker)||Three free a year then 180 days loss of interest||£0||£0||£277.07|
|Source: Moneyfacts 18/04/08|
No strings attached:
Despite several accounts coming with strings attached, there is no reason to dismiss instant access accounts as many providers offer accounts that truly allow you free access to your funds.
Birmingham Midshires’ e-saver account, for example, has no withdrawal penalties and you won’t lose interest when you take out your money.
In addition, Anglo Irish Bank’s easy access account also allows withdrawals without any restrictions or penalties.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.