Losing interest in passbooks

Rates are average 1.25 per cent lower for accounts with passbooks

Savers who insist on a passbook for their instant access account are losing out to the tune of around 1.25 per cent in reduced interest, according to new analysis* by MoneyExpert.com. The independent financial comparison website says that the average interest rate of passbook accounts on balances of £1/£10 is only 2.53 per cent, whereas the average rate paid by instant access accounts without passbooks is 3.78 per cent.

Typically passbooks are used by older savers who are uneasy with telephone or online banking. However, with some passbook accounts paying a miserly half a per cent on balances of £1,000, MoneyExpert.com warns many could be missing out on competitive rates. Only six instant access savings accounts offer five per cent or more on balances of £1/£10 if you want a passbook.

But if you ditch the passbook youíll have access to a further 28 accounts paying over the magic five per cent threshold. And the options for serious savers arenít any better. Someone with £1,000 invested in an instant access account can choose from 64 accounts that pay five per cent or more. Only 11 of these ñ around one in six ñ come with a passbook.

MoneyExpert.com Chief Executive Sean Gardner said: ìOnline banking and even telephone banking is still a strange concept to some people. Many savers feel safer with a passbook.

ìBut they are paying a price for that peace of mind. An extra 1.25 per cent interest a year is probably worth more than a passbook, particularly if you have a lot of money to invest. The best deals are now online because the accounts are cheaper to run and make more money for the providers. And that means no passbook.

ìProviding passbooks to savers is just another cost for many banks and building societies and they donít offer the best rates to investors as a result.

” Someone with £1,000 invested for a year in an account paying 0.51 per cent will earn just £5.10 in interest and thatís before tax. The same £1,000 invested in the average of the best ten easy access accounts with passbooks will earn £52.80 in the year while in the best instant access account it would earn £57.50.

Savings Accounts Average AER on balance of £1k with passbook Average by AER on balance of £1k without passbook Difference
Top 10 accounts 5.28% 5.53% 0.25%
Top 20 accounts 5.06% 5.42% 0.36%
Highest rate 5.46% 5.75% 0.29%
Average rate 2.79% 3.86% 1.07%

[source: MoneyExpert.com]

Sean Gardner added: ìThere are still some good accounts which offer passbooks and there isnít much to choose between the top accounts. Unfortunately itís hard to predict how many passbook holders will have had the opportunity to find these deals.

ìSavers should seek out these accounts proactively rather than leave their money languishing in a poor paying account. If youíre getting under 4 per cent, you should consider switching. And if youíre getting under 1 per cent, youíd be as well sticking the money under your mattress.”

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Notes

* MoneyExpert.com analysis of the Defaqto Aequos Database, 4.01.07

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