Savers who fail to read the fine print could be earning up to 1.75% less than the headline rate.
Tiered savings accounts advertise attractive rates but require that you deposit a large sum of money to qualify for it. Savers who can’t ‘make the grade’ are left languishing on a significantly lower rate.
And it’s not just savers with a small deposit who should be weary of tiered savings accounts: Many require a minimum investment of between £50,000 and £100,000 to qualify for the ‘top tier’ or best rate.
Considering the Financial Services Compensation Scheme only guarantees the first £35,000 of savings should your bank go under, it’s inadvisable that you hold more than this in any one place – especially during such volatile market conditions.
Not immediately evident
Another problem with tiered savings accounts is that they can’t be immediately identified as such.
For example, consider the following two products: The Cahoot Instant Access Account can be opened with just £1 and offers an impressive 6.55% rate. ICICI’s Hisave has a similar minimum investment, but comes with a 6.16% rate.
At first glance, you’d say Cahoot is the better option, but it’s only once you peruse the fine print that you discover the account requires a minimum investment of £1 million to get that rate. All amounts below £50,000 earn just 5.25% interest.
So which accounts are tiered?
Tiered accounts are more popular than you think. We did a quick search of the market and easily identified 12 such deals on offer at both small and big name banks (which we have listed below).
Lloyds TSB is particularly fond of them: Of the ten products on the savings page of its web site, eight have tiered rates.
The bank’s Internet Saver is a good illustration of the perils of tiered accounts. It advertises a headline rate of 5.00%, but save less than £2,500 and you’ll earn just 3.25% on your money.
Popular accounts that offer tiered rates
| Headline rate | On £10,000 you’d earn… | On £1,000 you’d earn… |
| Cahoot Savings Account | 6.55% | 5.00% | 5.00% |
| Lloyds TSB Internet Saver | 5.00% | 4.50% | 3.25% |
| Halifax Websaver Extra | 5.57% | 4.25% | 4.25% |
| NS&I Easy Access | 4.40% | 3.90% | 3.35% |
| Abbey Flexible Saver | 4.15% | 3.10% | 2.90% |
| Chelsea BS Classic Account | 3.40% | 2.60% | 1.85% |
| RBS Direct Saver | 4.70% | 4.20% | 3.95% |
| First Direct Bonus Savings | 5.00% | 4.50% | N/A |
| Lloyds TSB Guaranteed Tracker | 3.65% | 3.15% | 2.90% |
| Abbey eSaver | 5.80% | 5.40% | 5.40% |
| Nationwide Cashbuilder | 3.05% | 2.45% | 2.15% |
| Lloyds TSB Rewards Savings | 2.95% | 2.45% | 1.95% |
Needn't avoid every account
We aren't trying to say that all tiered savings accounts should be avoided, far from it. Some offer highly competitive rates and the top tier is well within reach of even modest savers.
Unfortunately, there are many others out there that lure people in with great rates that most savers have little or no chance of obtaining.
The best way to ensure you aren’t caught out by tiered accounts is to keep an eye out for the tell tale “up to” before they give you the rate (“This account pays up to 6.55% interest”), and make sure you read the fine print – there should be a table highlighting the tiered rates somewhere on the bank’s web site.
