With interest rates on the rise, savings institutions are boasting about the great rates they are offering, says Liz Dolan in The Sunday Telegraph. Take Northern Rock’s 5.01% rate. Sounds great, doesn’t it? But there’s a problem that’s only made clear in the small print. For starters, this rate includes a whacking ‘bonus’ worth 0.7%, which disappears after six months. Worse still, the bank goes on to say that the annual interest rate on the account is guaranteed to be “no lower than 0.5% below the UK bank base rate”. So there’s nothing to prevent Northern Rock cutting the rate to 3.75% whenever it likes. Northern Rock is not alone in advertising headline rates that make little long-term sense. A number of its competitors employ similar tactics.
And this isn’t all, says Grainne Gilmore in The Times. Many savings institutions are also refusing to pass on the recent rises in base interest rates to their customers. Consider savers at NatWest. Some have seen a quarter point rise in their rates recently, but those with money in the bank’s superseded (closed to new customers) Special Reserve Account will be overlooked and continue to receive a pathetic total of just 0.25%. Likewise, savers in Barclays’ superseded Instant-Access Account had their rate fixed at a mere 0.15% last month. The banks get away with this because, under the banking code, superseded accounts can offer consumers far lower rates than those on the bank’s current range. Still, legal or not, there’s no need to show loyalty to banks that treat long-standing customers like this. Anyone with a lousy rate such as these should move their money immediately.
But where to? The most tempting are the accounts offering attractive fixed rates, such as the 5.56% paid by Capital One on its two-year bond. But expectations that the Bank of England could raise rates more sharply than forecast means that the best variable rates could soon rise to as high as 5.7%, so you might want to hedge your bets. This means going for Yorkshire Building Society’s Guaranteed Tracker account, which offers 5.25% over two years – unless the base rate goes higher than that, in which case Yorkshire will raise its rate to match it.
But make sure the account is right for you before you take the plunge, says Melanie Bien in The Independent on Sunday. The minimum investment is only £100 and you can make deposits into the account while the issue remains available, but you cannot access the account during the term, so don’t tie-up cash you might need in a hurry: the “only way to get your hands on it” is to close the account. And if you do that, you will lose the last 180 days worth of interest.