Beware return of bonus accounts

TREACHEROUS savings accounts that pay a bonus for the first year are back with a vengeance.

This month sees the arrival of no fewer than five easy-access deals with a headline rate of as much as 1.4 pc.

But after you have been in the account for a year, your return sharply drops.

Money Mail has decided — after serious consideration — to exclude them from our best buy tables (below).

Despite them paying top rates, you earn very little extra interest over the first 12 months compared with a non-bonus account. You make a mere 90p extra on each £1,000 and then have to go through the hassle of moving your money after a year.

If you miss any warning letter from your provider, or even forget to shift to another account, you could even end up worse off.

Banks use bonuses so they can offer a strong headline rate and rely on customer apathy to recoup the extra interest further down the line. Once you have been in the account for a year, the idea of loyalty goes out the window and you end up earning as little as 0.2 pc.

If they paid you far more interest than nonbonus accounts, they would be up for inclusion in our tables, along with a warning that you need to move your money after a year.

This month also saw the arrival of Paragon Bank’s internet-based Limited Edition Easy Access account Issue 6 at 1.31 pc with no bonus. That is just 0.09 percentage points less than the top bonus account at 1.4 pc — worth just 90p extra interest on your £1,000.

You also have the option of RCI Bank’s Freedom account at 1.3 pc with no bonus.

In the past, this bank has tended to pass on any increase in its rates to savers already in the account.

Paragon, however — in line with many other providers — launches a new issue of the account, which it leaves on sale for a few months, before closing it to new savers. It will then bring out a new issue of the same account for new savers.

Those in closed issues earn different amounts to the headline rate on the new one. For example, those in Issue 1 of the Limited Edition Easy Access account earn a lower 1.15 pc and those in Issue 3 a higher 1.4 pc.

For the record, the top bonus accounts include Coventry BS Limited Access at 1.4 pc (1 pc after a year) — you are limited to three free withdrawals every 12 months. The society raised the rate from 1.35 pc yesterday.

BM Savings, part of Lloyds Banking Group, pays 1.35 pc including a bonus but, after a year, your money earns 0.2 pc. If you fail to move it, your interest on £10,000 will drop from £135 to just £20.

Bank of Cyprus UK has raised the rate on its Online Saver to 1.34 pc (a rate that drops to 0.85 pc after a year) and Tesco Bank’s Internet Saver now pays 1.34 pc to new savers (0.55 pc after a year).