Moving your savings into an account with a 12-month bonus period could help you evade lower interest rates and still make a return on your savings.
In the past, many people shunned savings deals with 12-month introductory bonus rates as simply more hassle than they were worth – but with savings rates are looking so dire at the moment, opting for a bonus could be your best bet of boosting your return.
Figures from the Bank of England show that average rates of no-notice accounts were under 1% in December while fixed-rate deals were just a little higher at 3%. These rates are likely to have fallen further following January’s 0.5% base rate cut.
However, the Bank of England cannot cut interest rates below 0% and by this time next year it is possible that rates will start to rise again. Opting for a bonus rate savings account to see you through the interim period could protect your nest-egg from monetary policy.
So, what type of bonus introductory deals are out there at the moment?
ING Direct pays 4% AER including a 1.95% bonus for 12 months, although as the interest is paid monthly your'll actually only earn 3.93%.
Interest is variable and this deal is only open to new customers. You can open an account from £1, however, and there are no withdrawal restrictions.
Bradford & Bingley, now part of the Santander group of banks, pays 3.6% APR on its e-savings account including a 12-month bonus rate of 1%.
You will, however, need a balance of at least £1,000 to qualify for this account. The account’s interest rate is variable, and could fall in-line with the base rate, but is at least guaranteed to at least match official interest rates until 1 July 2009.
And, on the plus side, Bradford & Bingley’s e-saver is instant access and withdrawals are not subject to any penalties.
Elsewhere, Whiteaway Laidlaw Bank offers a 60-day bonus account paying 3.56% AER including a bonus rate of 1% for 12 months.
Again, you’ll need £1,000 to open this deal and the interest rate is variable. Plus, you will need to give 60 days' notice in writing before you can access your cash or risk losing 14 days' interest on the amount withdrawn.
This account is not accessible online, and can only be managed by post or in branch. Whiteaway Laidlaw is based in Manchester with branches in the north of England and the Midlands. It is covered by the Financial Services Compensation Scheme, so your money is protected up to £50,000.
There are also a few accounts with shorter-term bonus rate periods.
Bath Building Society offers a Direct 60 postal account paying 3.55% AER for six months, including a bonus rate of 0.6%. After six months the rate falls to 2.95%.
The downside to this deal is that the bonus rate is for six months only, plus the interest rate is variable and could fall if the Bank of England base rate does.
You’ll also have to give 60 days notice to access your money, or on demand subject to 60 days’ loss of interest on the amount withdrawn.
Finally, you will need to deposit £2,500 to open this account.
Britannia Building Society also offers a bonus rate account, called a DirectSaver Reserve, which pays 3% AER including a bonus rate of 1% for six months. You only need £100 to open this account,
This account can be managed online or over the phone, but only allows withdrawals on 12 days a year. The minimum withdrawal amount is £100.
If you do break these withdrawal restrictions then your money will be moved to a DirectSaver account (paying 2% AER) and the bonus will only be paid to the date of the 13th withdrawal.
Again, the interest rate is variable.