With introductory bonus rates becoming the norm and banks reserving their best rates for new customers, it’s essential you keep switching your savings account.
For years savvy credit card customers have been jumping from one introductory 0% offer to the next in order to pay off their debt as cheaply as possible, a practice which became known as ‘rate tarting’.
And you need to take this same approach to saving if you want to get the best rates out there (obviously this doesn’t apply to fixed saving accounts, where you lose interest if you access your money before maturity).
Savings has changed
Gone are the days when you could just open a leading savings account and forget about it, safe in the knowledge you’d be earning a top rate for life.
Nowadays banks employ a number of slick gimmicks which mean that you either don’t get the advertised rate for very long after opening the account, or the bank will launch a more attractive deal shortly after but leave you languishing on the old one.
The following are the three most common gimmicks we’ve come across (feel free to let us know of any other nasties you may have encountered), which really highlight the importance of becoming a savings rate tart.
#1 The introductory bonus
Many saving accounts promise an extremely attractive rate, only for the lender to slash it by as much as 1% after a certain amount of time (usually one year or less). This is known as an introductory bonus rate and it is appearing in more and more accounts.
Popular accounts that employ this tactic include the ING Direct Savings Account and the Alliance & Leicester Direct Saver.
Many of the introductory bonus accounts are competitive deals, it’s just that they don’t stay competitive for very long. So feel free to sign up to one and, when they do reduce your rate, simply reduce your investment and jump into bed with the next attractive bank.
#2 The account downgrade
Sometimes a bank will offer you a savings account that remains attractive for life, but won’t let you stay in it for long. Rather, it downgrades you to a lower paying account after a certain amount of time.
A good example of this is the Abbey Super ISA. Had you opened this account last year, you would have bagged an impressive 8.1%, but after one year your savings would be dumped in Abbey’s direct ISA, which pays a 5.75% rate.
It’s a nasty gimmick, but again it doesn’t mean you should avoid all accounts that employ this. Make the most of the attractive rate then switch as necessary.
#3 Best rates for new customers
When a bank needs to attract more money, it will launch an account with breath-taking rates. Sadly, existing customers aren’t offered the same deal, and are left languishing on the dingy old rates instead.
A great example of this is Alliance & Leicester’s Direct ISA. Customer who sign up to its latest issue 4 will earn an impressive 6.25%, but those on older issues will earn as little as 5%.
Banks aren’t the only ones that don’t reward customer loyalty – insurers are famous for reserving their best quotes for new customers while plumping up their profits on renewals – and there’s no reason why you can’t get in on the act.
As a rate tart, feel free to regard loyalty with the same disdain and ditch your no-good bank the second something better comes along.
