Average ‘bonus’ rate expires in under nine months
The number of savings accounts using ‘bonus’ rates to attract new customers has increased by 30% since October 2007, according to new research from Investec Private Bank. Analysis of Investec’s latest Savings Index1, reveals that of the 924 accounts reviewed, 151 feature a ‘bonus’ rate which expires on average in less than nine months.
The Index, which analyses savings accounts for balances of £25,000 or more, shows that not only has the number of accounts reliant on ‘bonuses’ to boost their rates increased, but so too has the average ‘bonus’ size. Furthermore, the average lifespan of the bonus has shortened from 284 days in October 2007 to 265 days. As a consequence, says Investec, many savers will leave cash languishing in underperforming savings accounts once their initial ‘bonus’ rate has expired.
However, Investec says that savers do not need to rely on bonuses to ensure good rates of return. For instance, the Investec High 5 Account guarantees to always pay the average of the top five best-buy accounts as chosen and published by Moneyfacts.2
The following table outlines how the use of ‘bonus’ rates to attract savers has developed over the last six months for balances of £25,000:
|†||27 October 2007||27 April 2008|
|Number of accounts with bonus rates||116||151|
|Average bonus size||0.61%||0.70%|
|Average bonus duration (days)||284||265|
Linda McBain, Head of Banking, Investec Private Bank, said: "Banks are more frequently boosting their headline savings rates using appealing short-term bonuses. While these can seem attractive, the reality is that savers need to take a long-term view."
"It is impractical to continually switch savings accounts to take advantage of introductory bonus rates. In reality inertia usually takes control and, having been attracted by the initial headline rate, many savers will leave their cash in the same account regardless of what happens to the rate. It is imperative that savers find an account that offers not only a competitive rate but also guarantees consistency."
Investec Private Bank does not rely on bonuses to offer attractive returns. It aims to provide its clients with some of the most consistently competitive rates in the savings marketplace and to be as transparent as possible with them. The Investec High 5 account, which always pays the average of the five best-buy accounts as chosen by the independent financial product research company Moneyfacts, currently pays 6.51% gross AER3.
To find out more about the Investec High 5 Account or Investec Private Bank’s other unique cash products, please call 0845 366 6333 or visit www.investecprivatebank.co.uk/high5.
1 Investec Private Bank’s Savings Index tracks on a six monthly basis interest rates on savings accounts for balances of £25,000 using data provided by Moneyfacts.
2 The rate is based on the average of the top 5 savings rates published on the Moneyfacts website www.moneyfacts.co.uk across the categories of no notice accounts, notice accounts, internet accounts, monthly interest accounts, accounts for the over 50’s and accounts with an introductory bonus.
3 The Annual Equivalent Rate (AER) is a notional rate, which illustrates the contractual interest rate as if paid and compounded on an annual basis and is subject to variation. The rate is correct as at 4 June 2008.