An easy access deal with no withdrawal penalties
Egg has launched a online savings account paying 6.55% AER that comes with no withdrawal restrictions, penalties or notice periods.
The deal, which is designed for people looking to save between £1 and £100,000, includes a bonus of 1.8% AER for the first 12 months. It is available to both new and existing customers as long as the money is transferred from a non-Egg account.
After the 12-month bonus period ends, the AER reverts to Egg’s Standard Variable Rate – currently 4.75%. Be aware that both the AER and the bonus rate are variable – and, therefore, could go down in-line with Bank of England base rate in the future.
Dean Proctor, head of savings and investment at Egg, says: "Opening an Egg savings account is simple and provides the added flexibility to pay in or withdraw whenever you like, without penalty."
Access is online only – so if you’d rather bank over the phone or through a branch this is not the account for you. Deposits can be made via electronic transfer or cheque.
How does it compare?
Rate-wise, Egg is not currently the highest paying instant access account on the market.
Alliance & Leicester’s eSaver pays 6.6% AER, and this rate is guaranteed to be at least 0.50% above Bank of England base rate until 28 February 2010. Alliance & Leicester allows you to make one-off payments whenever you want as well as regular amounts each month.
However, there is a catch to this account - you only earn 6.6% AER as long as you don’t make any withdrawals. If you make withdrawals, then no interest is earned in that month except in July, when withdrawals are allowed without loss of interest.
And, because your interest is paid monthly, the actual net interest rate is 6.41%.
Elsewhere, Birmingham Midshires, part of the HBOS group of banks, pays 6.52% AER. Like Egg, Birmingham Midshires allows unlimited transactions at no loss of interest.
However, interest is paid monthly (into a nominated, separate account) so your net interest rate is actually 6.33%. Plus, this account is not available to joint account holders.
Finally, NatWest pays 6.5% AER on its e-Savings account, including a fixed-rate bonus of 2.09% for 12 months. The main interest rate is variable, and could change with base rate, and bear in mind interest is paid monthly so your net rate is actually 5.05%.
On the plus side, this account has no withdrawal penalties.
One catch with both the Egg and the NatWest account is that the AER includes a bonus rate for 12 months - fine if you are happy to move your money after one-year, but a pain if you'd rather find a longer-term home for your cash.
Saving experts often warn savers off account with introductory bonuses, as the 'fall' in rate once these expire can often catch people out.
Kevin Mountford, head of savings at moneysupermarket.com, says: "[Bonus rates] are designed to lure savers in with the hope they stay loyal to the account after the bonus runs out. In the current economic climate there is a real battle to maintain attractive headline rates, but many providers are also looking to ensure their profits aren't eroded by providing high rates for too long."
For more great easy access accounts - and a breakdown of the pros and cons - read our daily round-up of the savings market.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
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.