Best buy easy-access savings account rates continue to tumble

| October 2, 2012 | 0 Comments

By
Lee Boyce

10:13 EST, 2 October 2012


|

10:14 EST, 2 October 2012

The average rate of easy-access savings accounts has fallen drastically in recent weeks, leaving savers with limited options when it comes to top-paying deals.

The average rate of the top five highest highest paying accounts on offer is now just 2.78 per cent, a down 0.44 points in just three months. In July, the average was 3.22 per cent.

This is Money warned at the start of September that easy-access accounts could continue to slide as deals paying over three per cent started to vanish. Evidence of that came today as Santander cut is best rate for the second time in a little under a month.

Sinking fast: The average best buy easy-access account has fallen from 3.22% in July to 2.78% today

Sinking fast: The average best buy easy-access account has fallen from 3.22% in July to 2.78% today

Santander last month pulled the plug on eSaver Issue 6, its 3 per cent-plus easy-access deal. The replacement, the eSaver Issue 7, paid 2.8 per cent rate but this too has been withdrawn. The new eSaver 8 pays just 2.5 per cent.

The falls have come despite a static Bank of England base rate – it has remained at a historic low of 0.5 per cent for more than three years.

Alongside the falls, research has shown that top paying savings accounts increasingly come with a higher proportion of ‘bonus’ to make up the headline rate. This means that savers who take one of these
accounts will see the rate they get drop dramatically as the time-limited bonus element falls away, usually after a year.

These
bonuses allow providers to market an attractive rate to
customers.

The
average bonus rate has increased from 1.5 per cent in October 2011 to
1.79 per cent in 2012, meaning the average bonus now accounts for
65 per cent of the total rate, compared to 49 per cent last year. In some cases the bonus can be worth twice the permanent interest rate.

It also means the percentage of the best buy easy-access accounts made up of an artificially high bonus is at a two-year high.

With rates tumbling, savers who took out a deal with a bonus 12 months ago and are looking to switch their cash into another easy-access account will have to make-do with lower rates.

For example, a saver that took out the leading Nationwide Building Society MySave Online Plus account in October 2011 will now find their 3.12 per cent rate drops to 1.58 per cent. The best rate they can get now to replace it is 0.32 points lower.

Bonus rates: As rates have fallen, the percentage of accounts made up of bonuses has increased

Bonus rates: As rates have fallen, the percentage of accounts made up of bonuses has increased

Is QE and Funding for Lending Scheme to blame for falls?

At present, the easy-access savings market is suffering from a ‘domino effect’ – as one provider pulls a rate, others follow so that they pay now more in interest than they have to.

Falls in savings rates seem to be going hand-in-hand with the launch of the Funding for Lending scheme. In August, the Government introduced the scheme, which allowed banks to tap into
£80billion worth of cheap lending.

At
the time, This is Money and savings experts said that this could have a
detrimental impact to savers as banks wouldn’t have to offer such attractive rates to potential new customers due to the access to cheap money.

Anna Bowes, from savings alert website Savings Champion, said: ‘There seems to have been an adjustment in the way providers are approaching their easy access savings accounts.

‘The requirement to be at the top of the best buys has waned and in fact gone into reverse. As soon as an account is left at the top of the pile, it’s gets withdrawn and this situation doesn’t appear to be stopping just yet.

‘The requirement to draw in new money simply appears to have eased which could well be due to the quantitative easing programme and Funding for Lending scheme – which helps encourage spending and lending but at the expense of the saver.’

Should savers snap up an easy-access rate now?

Kevin Mountford, head of banking at Moneysupermarket, said: ‘It is a shame that we have continued to see a drop in savings rates after a period when providers were offering rates in excess of three per cent.

‘Savers should jump on current available rates before they decline any further and potentially erode their potential savings pot.

‘Savers need to do everything in their power to help their savings go further. Although rates may not appear to have been as attractive as they were two months ago, the top rates are still high and anyone whose savings are languishing in an account paying a poor rate, can still maximise the return by moving to a new account.’

What are the best paying easy-access deals?

With easy-access rates tumbling, savers who don’t want the hassle of having to move providers when a bonus runs out could be better off with a ‘clean’ rate account with no bonus attached.

The top paying account, the National Counties Building Society, is offering a rate of 2.75 per cent without a bonus – only slightly lower than the top paying bonus account currently on offer – and it can be opened with just £1.

Sainsbury’s is offering a ‘clean’ 2.7 per cent with its eSaver Special. This requires at least £1,000 in the account and is managed online.

With a bonus, both the Halifax Online Saver and the AA Internet Extra Issue 4 are offering a 2.8 per cent rate which can be opened with £1. However, in 12 months’ time, the Halifax account will slip down to just 0.1 per cent while the AA deal will fall to 0.5 per cent.

ONLINE ACCOUNTS –
easy access
Type of account (min investment)

0% tax
20% tax
40% tax
(1) Available through Northern Rock, which is part of Virgin Money
(2) Rates includes a bonus for the first 12 months after which the rate drops to 0.5 per cent.
(3) Includes a 1.75 percentage point bonus payable until 28 February 2014.
(4) Includes 2.3 percentage point variable bonus for 12 months
(5) Open to new savers who have not had a Direct Savings account with the bank for the last six months. Rate includes a fixed bonus of 2.17 percentage points for 12 months
(6) Includes a 0.69 percentage point bonus payable for the first twelve
months.
(8) Just one free withdrawal a year allowed on this account. Rate includes a 1.21 percentage point bonus for the first year.
(10) You can’t make withdrawals for the first 14 days after opening the account.
(11) Includes a 2.7 percentage point bonus for the first twelve months.
(12) Licensed to Bank of Ireland UK subsidiary –
more explained here.

(13) For those age 60 and over only
(15) Includes a 1.2 percentage point bonus paid for the first year
(17) Includes a 1.35 percentage point bonus paid for the first twelve
months
(18) Includes a 1.3 percentage bonus for the first twelve months.

BONUS accounts- These accounts pay a bonus for the first 12 months
or more. These are the rates including the bonus:

Halifax Online Saver(£1+)(11)
2.80
2.24
1.68

AA Internet Extra Issue 4(£1+)(2)
2.80
2.24
1.68

Derbyshire NetSaver Issue 4 (£1+) (3)
2.75
2.20
1.65

Nationwide MySave Plus (£1,000+)(8)
2.75
2.20
1.65

Principality e-Saver 7(£1+) (15)
2.65
2.08
1.59

ING Direct (£1+)(5)
2.60
2.20
1.66

Tesco Internet(£1+)(17)
2.60
2.08
1.56

Scottish Widows Bank(£1+)(6)
2.60
2.08
1.56

GE Capital Direct GE Bonus Saver Issue 3(£500+)(18)
2.50
2.00
1.50

Santander eSaver Issue 8 (£1+) (4)

2.50
2.00
1.50

Accounts WITHOUT bonus- These rates are not boosted by a temporary
bonus that drops off after a year:

National Counties BS Online Saver Issue 1
2.75
2.20
1.65

Sainsbury’s eSaver Special(£1,000+)
2.70
2.16
1.62

Virgin Easy Access E-Saver Issue 2(£1+)(1)
2.60
2.08
1.56

Cambridge BS e-saver 5(£1+) (10)
2.55
2.04
1.53

Saffron e-saver 6(£10+)
2.50
2.00
1.50

Sainsbury’s Extra Saver(£1+)
2.50
2.00
1.50

Norwich Peterborough E Saver 5(£1+)
2.50
2.00
1.50

Melton Mowbray BS Online Easy Save(£1,000+)
2.50
2.00
1.50

Intelligent Finance (IF) iSaver(£1+)
2.49
1.99
1.49

Market Harborough S Onthedot Sixty Plus Surfer (£1) (13)

2.35
1.88
1.41

GE Capital Direct GE Saver(£500+)
2.35
1.88
1.41

Newcastle Sir Bobby Robson Foundation Saver(£1+)
2.35
1.88
1.41

Market Harborough Onthedot(£1+)
2.20
1.76
1.32

Yorkshire BS Internet Saver(£1+)
2.10
1.68
1.26

Marsden BS eSaver(£250+)
2.10
1.68
1.26

BRANCH-BASED ACCOUNTS
Instant access
Type of account (min investment)
0% tax
20% tax
40% tax
(1) Card-based account
(2) Includes 0.6 percentage point bonus for one year
(3) Guarantees to pay base rate. Min withdrawal £50. No cash withdrawals.
(4) You are limited to 3 withdrawals a year.
(5)Open to those which children up to 18.
(6) Includes a 1.25 percentage point bonus for one year. You can only
open an account by moving money to the society – not by transferring money
from an existing account with the society.
(7) Available through Northern Rock, which is part of Virgin Money.
(8) Includes a 2 percentage point bonus for the first 12 months.
(9) Excludes 1.5 percentage point bonus payable for the first year. There
is no guarantee linking the rate to base rate. You have to apply over the
internet or telephone for this account.
(10) Only available to Nationwide’s current account holders. Guarantees
1.5 percentage points over base rate until January 2014.
(11) Includes 1.5 percentage point bonus for 12 months.
(12) Maximum investment £20,000 (£40,000 on joint accounts), including a 0.6 percentage point bonus until 30th September 2013. You can’t add any more money once it is closed to new savers. New money to the society only.
(13) Licensed to Bank of Ireland UK subsidiary –
more explained here

BONUS accounts- These accounts pay a bonus for the first 12 months
or more. These are the rates including the bonus:

Leeds BS Bonus Access Saver Issue 2(£100+)(2)
2.65
2.12
1.59

Norwich Peterborough BS(£1+)(6)
2.25
1.80
1.35

Post Office Instant Saver(£500+)(8)(13)
2.10
1.68
1.26

Halifax Everyday Reward(£1+) (11)
2.00
1.60
1.20

Lloyds TSB(£1+) (11)
1.60
1.28
0.96

Accounts WITHOUT bonus- These rates are not boosted by a temporary
bonus that drops off after a year:

Virgin Easy Access E-Saver Issue 2(£1+)(7)
2.60
2.08
1.56

Newcastle Sir Bobby Robson Foundation Saver(£1+)
2.35
1.88
1.41

Kent Reliance Banking Services Easy Access (£1,000+)
2.25
1.80
1.35

Chelsea BS Triple Access Saver (£100+)(4)
2.25
1.80
1.35

Barnsley BS Triple Access Saver(£100+)(4)
2.25
1.80
1.35

Yorkshire BS Triple Access Saver(£100+) (4)
2.25
1.80
1.35

Skipton My Savings(£1+)
2.25
1.80
1.35

Kent Reliance Banking Services(£1,000+)
2.25
1.80
1.35

Nationwide Flexclusive 2 (£1,000+)(10)
2.00
1.60
1.20

Leeds BS Albion Saver(£2,500+)
1.35
1.08
0.81

Norwich Peterborough Family Easy Access(£1+) (5)
1.00
0.80
0.60

Tesco Personal Finance(£10,000+) (1)
1.00
0.80
0.60

Tesco Personal Finance(£1) (1)
0.75
0.60
0.45

Derbyshire Easy Save Tracker 2(£100+) (3)
0.50
0.40
0.30

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