Best new instant access savings accounts
Alliance & Leicester has upped the stakes in the instant access savings market with the launch of a new online deal paying 3.15%.
The launch follows a number of rate hikes and tweaks across the savings market, which have seen both fixed-rate and instant access accounts grow ever more competitive.
The new account from Santander-owned Alliance & Leicester pays a variable rate of 3.15%, including a bonus of up to 2.65% until 2 August 2010.
There are no withdrawal restrictions, so you can access your money without being hit with a penalty or loss of interest, and you can save between £1 and £2 million in this account.
Reza Attar-Zadeh, director of savings and investments at Alliance & Leicester, says: "This is a fantastic rate for an easy access account and with access via the internet 365 days a year it really couldn't be easier.”
While this deal is market-leading, the bonus aspect may cause some confusion. For a start, the hefty bonus helps make this account so attractive, but once it expires in August next year the interest you earn will drop quite sharply. If you do decide to open this account, make sure you remember to review your options ahead of next August so you don’t see your returns shrink overnight (see below).
Secondly, the bonus is actually tiered. This means that you will earn a total return of 3.15% until August 2010 as long as you have at least £1 in your account - however, the higher the balance, the lower the bonus you earn.
So, if your balance is more than £25,000, your bonus will reduce to 2.4%. If you save more than £50,000 (bearing in mind this is the current limit under the Financial Services Compensation Scheme, and anything over is not guaranteed to be returned to you should the bank fall into difficulties) then your bonus will drop to 2.15%. A balance over £250,000 would only receive a bonus of 1.65%.
Other new launches
The new account from Alliance & Leicester is just one of several new instant access deals to hit the market over the past few weeks.
The other most recent is Coventry Building Society's new online account for people aged 50 and over. While this deal is not for everyone, it pays an attractive 3.25% AER and, unlike many instant access deals, the rate is fixed for 12 months.
There is no bonus on this account, but the rate will decrease after the 12-month fixed period ends, so make sure you are ready to review your savings at that point. The account can be opened with as little as £1 and allows unlimited withdrawals but it is only for people aged 50 and over.
Elsewhere, Nottingham Building Society is offering a new postal account paying 3.15%. However, you'll need £1,000 to deposit to open this account and you can only make withdrawals if you give 50 days’ notice in writing.
Birmingham Midshires recently launched a telephone savings account paying 3.15% on deposits from £1. This deal allows unlimited and penalty-free withdrawals, but access is restricted to telephone banking. The rate also includes a bonus of 2.65% for the first 12 months, meaning after one year your returns are likely to drop significantly.
Leeds Building Society is offered a new instant access online account paying 3.05% AER including a 1% bonus until the end of July 2010. Unlimited withdrawals are permitted, and you won’t have to give notice to access your cash, but if your balance falls below £100, the account will be closed.
Principality Building Society offers an e-Saver account paying 2.85% AER, including a bonus rate of 1.20% for the first 12 months. You only need a balance of £1 to open this account and there are no limits on the number and size of deposits or withdrawals, although the maximum balance allowed is £1 million. This account can only be opened and managed online.
Finally, Egg pays 2.8% AER on its variable-rate instant access account, including a fixed bonus of 1.55% for 12 months. Unlimited withdrawals are permitted.
The danger of bonus rates
One common feature of the best instant access deals on the market at the moment is that fact rates are bolstered with large bonuses.
While this is great if you are happy to move your money around every 12 months or similar, bonus rates are actually a clever trick on the part of banks and building societies.
Bonus rates help draw in new customers, who then leave their money for several years either because of apathy or because they simply forget to look for a new home.
Andrew Hagger, spokesman at Moneynet, says: “It is vital that savers make a diary note to review their account when the bonus element is withdrawn next year otherwise they could find themselves earning a poor rate of return and undoing all the benefit received in the first 12 months.”
The best way to avoid being stung by introductory bonuses is to make a note in your diary and start reviewing your options a month before this expires. However, many people won’t already have a 2010 diary.
Another option is using an online filing system such as Allfiled – as well as offering a safe and easily accessible home for your important financial information, you can also set up reminders for anything from renewing your home insurance, booking an MOT or moving your savings to a new home.
All Moneywise.co.uk registered users benefit from a free five-year membership of Allfiled. Click here to find out more.
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.
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