How do Post Office savings shape up?

24 September 2008

Moves by the Irish government to increase the depositor guarantee from economic turmoil will see Post Office savers receive nearly £80,000 of their money protected.

Although the vast majority of savers in the UK are covered by the Financial Services Compensation Scheme (FSCS), which will pay compensation up to £35,000 (increasing to £50,000 on 7 October) in the event that a bank fails, savers in Ireland are now covered by to €100,000 (approximately £78,700).

Because the Post Office offers its savings deals through Bank of Ireland, its savers are included in the new scheme and therefore will receive nearly double the protection that other depositors in the UK enjoy.

The move could spark a flurry of savers moving their cash over to Post Office accounts, in search of extra protection. In recent weeks, search comparison website has reported an increased number of people moving money between accounts in a bid to reduce their exposure to any one bank.

There are also reports that some savers have been opting for Northern Rock saving accounts, not because of the rate but because 100% of all money deposited in this bank is guaranteed by the government for as long as it remains in public ownership.

So, overlooking the extra protection the Post Office offers savers, how do its deals compare to what else is out there?


The Post Office currently offers one cash ISA paying 6.25% AER, including a 1.5% bonus for 12 months. This rate is variable, and tracks the Bank of England base rate, whether it goes up or down, until January 2010.

The minimum deposit for this account is £1 and, as with any ISA, you can only deposit up to £3,600 per tax year. Two benefits of this ISA is that, firstly, it accepts transfers from previous ISA years and, secondly, it has no withdrawal restrictions other than requests must be made in writing.

The Post Office’s ISA does offer one of the more competitive rates on the market. Elsewhere, Ruffler Bank pays a flat-rate of 6.25% AER, but the minimum deposit is £3,600. On the plus side, transfers are allowed.

Also paying 6.25% is Barclays. This rate includes a 1% bonus for 12 months, but unlike the Post Office and Ruffler transfers are not permitted. The minimum deposit is £1.

Saving accounts

The Post Office offers an instant saver account that pays 5.75% AER (variable), including a 1.5% introductory bonus for new customers for 12 months. One of the key benefits of this account is that it is very accessible, and savers can make payments and withdrawals in-branch, by post, phone, online or at over 60,000 ATMs nationwide.

When it comes to instant access accounts, you should always take the withdrawals restrictions into consideration. With the Post Office’s product, you can take out up to £1,000 a day in cash of cleared funds, with larger amounts requiring a cheque or BACS transfer. Customers, however, are only allowed to make six withdrawals each year from 21 March to 20 March. After that, all withdrawals cost £1.

Another point to bear in mind is that this deal only offers annual interest payments (in March) so if you require a regular income from a savings account through monthly payments, this is not the account for you.

The minimum deposit on this account is £500, but additional payments can be from as little as £1.

Rate-wise, the Post Office’s deal is not one of the best around at the moment.

Alliance & Leicester, for example, pays 6.6%, while West Bromwich Building Society pays 6.56% AER on its no-notice instant access account and Kaupthing Edge pays 6.55%.

All these accounts have flat rates of interest, meaning you don’t have to worry that your rate will suddenly shrink after 12 months.

Alliance & Leicester’s eSaver may boast a great rate of interest, but it won’t be for everyone. The account will not pay any interest in months where withdrawals are made (except for July) so if you want to regularly dip into your savings this is probably not the place for your cash.

On the plus side, the account offers savers the choice of earning an annual rate of interest (6.6%) or receiving a monthly income of 6.41% interest, which is paid into your current account and is not treated as a withdrawal.

West Bromwich’s no-notice account also has a top rate, but bear in mind that if your balance falls below £1,000 you will only earn 3% AER on your nest egg. And, again, withdrawal restrictions apply; you can only make six withdrawals a year.

And West Bromwich takes no prisoners - on the seventh withdrawal, your account will be closed and funds returned.

Finally, Kaupthing Edge pays 6.55% AER – but you won’t actually receive this. Interest is made monthly, therefore in reality you only earn 6.36% interest. Again, you must have £100 in your account in order to earn interest.

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