Are Savings Rate Guarantees Worth The Paper They Are Written On?
Joanna O’Brien, savings analyst at Moneyfacts.co.uk, comments:
“As institutions continue to try and out do each other in what has become a very competitive savings market in recent months, investors need to make sure they read the small print carefully.
“Consumers need to look at rate guarantees with caution and consider them in the same way as they would a bonus on a savings account.
“Many guarantee rates to be at least equal to Base Rate until a set date or indefinitely and savers can be sure that their rate will never drop below Base Rate.
“What savers must be more careful of is when a rate paid is greater than Base Rate. They need to ensure they keep an eye on what happens to the rate both during the period of the guarantee and after as the rate could potentially drop a long way.
“Anglo Irish Bank’s 7 Day Notice Issue 2 account has a rate guarantee to be at least equal to Base Rate to 1.1.10. Currently it pays 6.55% gross from £1, considerably higher than Base Rate. However, based on today’s base rate of 5%, the rate could potentially be cut by 1.55%.
“Another example is Scarborough BS’s Branch Notice Saver where the rate is guaranteed to be at least Bank Base Rate plus 0.25% for the first year, then equal to Base Rate in the second year and variable thereafter. As the rate paid at the moment is higher than the guarantee it could potentially drop by 0.50%.
“Lloyds TSB Easy Saver account offers a rate guarantee, where it will be no less than 1.50% below Bank Base Rate to 31.12.10, but the account currently pays 3.50% gross. With the account already paying 1.50% below base rate, what benefit do consumers get?
“On some products the rate guarantee will only apply to certain tiers, so savers need to make sure they will be eligible for the guarantee before investing.
But they are not all bad
“Working for the consumer are guarantees for life such as The Co-operative Bank Savings Plus account where the rate is guaranteed to be 0.50% below Base Rate for the life of the account. Derbyshire BS also offers a similar guarantee on its Easy Saver Tracker Issue 2 and Bradford & Bingley’s product range under the Rate for Life banner.
“On a different note and mirroring mortgage tracker products, Scottish BS with its Senior Scotsaver account, available to over 50s, will ensure the rate will move in line with any base rate change within 28 days, giving savers certainty that when base rate alters, the rate will change.
“Investec Bank (UK)’s High 5 product offers to guarantee the rate to be the average of the five highest no notice, notice, internet, monthly accounts, accounts for over 50s and accounts with introductory bonuses quoted on Moneyfacts website calculated weekly on Tuesday. Consumers will find with this rate guarantee that their account will follow market trends. However, savers must have £25K to invest and be able to give three months’ notice to withdraw funds.
“By shopping around, consumers can obtain a far higher variable rate without worrying about rate guarantees that aren’t worth the paper they are written on!”
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.
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