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Savers left scrabbling around for the best of some rapidly declining interest rates are being urged to consider putting their money into accounts that in the past they were warned against.These include accounts with introductory bonuses or those with limited or no access to the money for a year.
The further cut in the Bank of England base rate last week means that many savers will soon be earning nothing on their money. A quarter of all variable rate savings accounts currently already offer a return of 0.1% or less.
Banks and building societies have long issued accounts with introductory bonuses to inflate their status in the "best buy" tables scrutinised by savers. They have attracted criticism for luring customers in only to slash the rate after six months or a year. But now, for those who want ready access to their cash, an account with a bonus is not such a bad idea, according to some experts.
"It is now worth looking at bonuses, as at least you are getting a guarantee of being paid above the Bank of England rate in most cases," says Andrew Hagger of Moneynet.
ING Direct, for example, has a no-notice savings account that is paying 3.5%. This is considered a good rate, but could soon fall now rates have come down again. However, 1.46% of that is a fixed introductory bonus for a year, which means savers are guaranteed at least that much if rates fall further. Even better, on Friday M&S Money said it would not be cutting the rate on its cash Isa following the Bank of England cut the previous day. The interest rate is 3.10%, tax-free, which includes a guaranteed 1% bonus until 21st April 2010.
Similarly, Egg has a 2% introductory bonus on an internet account paying 3.5%. This bonus is variable though, meaning that it could drop. And the little Mansfield building society has a postal account paying 3% on amounts over £1,000, a rate that includes a fixed 1.5% bonus for six months. No withdrawals can be made in this time.
Conversely, customers who took out an account paying an annual bonus a year ago may be among the biggest losers following the recent rate cuts.
Anyone who took out a What If? Special Edition Saver account with Bradford & Bingley last January will have initially earned 6%, including a 1% bonus. The rate has dropped by 5.45% and customers are now earning just 0.55%. Chelsea building society's Rainy Day Post Saver was paying 6% a year ago, with a 1% bonus, and is now paying 1%. Post Office Instant Saver customers were earning 5.75% a year ago and have seen rates fall by 5% to 0.75%.
The best savings rates are available to those willing to tie up their money for a year or more. Indian Bank ICICI is paying 4.3% fixed for a year, while the AA is offering 3.85% and Birmingham Midshires promises 3.5%. Anyone who has not yet used up their full cash Isa allowance of £3,600 is urged to do so. Birmingham Midshires is paying 3.5% fixed for one year, tax-free. This would earn someone investing their full allowance £126 over the year.
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