Beware return of teaser rates on best deals
SAVERS are being snared by deals which contain temporary bonus rates that drop off after a year.
These types of accounts had gone out of fashion in recent years — but now they’re back.
Banks and building societies are launching accounts which pay up to 1.3 pc. But you earn this top rate for a limited time.
Once you have been in the account for a year, the bonus rate disappears and you can end up earning as little as 0.05 pc.
Banks use ‘teaser rates’ so they can offer a strong headline rate and rely on customer apathy to recoup the extra interest further down the line.
Birmingham Midshires, where the deposit taker is Halifax, along with Leeds and Skipton building societies, have launched bonus accounts. Post Office, Tesco Bank and AA Savings are also in the frame.
Teaser rates are not new. They had all but disappeared in recent years as banks and building societies took advantage of cheap money from the Bank of England. But the so-called ‘Term Funding’ scheme is due to shut its doors early next year, and with a rise in base rate on the cards as early as next month, bonus accounts are reappearing.
When your rate drops, providers must write and remind you. But they hope you either won’t notice the warning among all the other mail they send or won’t bother moving to a better deal.
Last week Birmingham Midshires raised the rate on its Internet Saver to 1.3 pc. This applies to all savers who opened an account from October 6, when the account was first launched with a rate of 1.25 pc.
After 12 months, your account automatically changes to a Standard Saver Internet account which pays just 0.05 pc.
Bank of Cyprus UK’s Online Easy Access Account pays 1.28 pc, including a bonus paid for the first 12 months, after which the rate drops to 0.6 pc.
Post Office, where the deposit taker is Bank of Ireland, launched a new issue — number 26 — of its Online Saver at 1.27 pc for those who opened an account from October 5. Unless you move after a year, the rate drops to 0.25 pc.
If you have been in an account for more than a year, then you already earn this lowly rate. Tesco upped its Internet Saver rate for new customers to 1.2 pc from September 28, but after a year you earn 0.4 pc. Some cash Isas work in the same way. AA Savings, where the deposit taker is Bank of Ireland, upped its cash Isa rate to 1.06 pc — but pays just 0.2 pc after 12 months. Post Office and Skipton BS have Isas at 1.07pc and 1.02 pc respectively, which will pay 0.25 pc and 0.75 pc in a year’s time. Savings expert Kevin Mountford of Raisin UK, says: ‘These accounts have made a comeback because rates have risen to a higher level than expected. They take advantage of apathy, so if you go for one, do it with your eyes open and move your money when the offer runs out. Banks hope to recoup the extra interest from you staying put.’ Anna Bowes, from advice site Savings Champion, says: ‘You don’t usually have to stay in the account for a year to earn the bonus so you can switch at any time if better deals come along.’