The ten most misleading savings accounts

Modern savings accounts may boast alluring names, but do they actually provide a decent rate on your money?

As anyone checking out savings accounts at the moment will know, this is not a great time to be a saver.

The Bank of England is resolutely keeping interest rates low, while inflation has been running consistently at over 3% for the whole of 2010.

The interest rates on most savings accounts are relatively low at the moment. But that doesn’t seem to be stopping banks and building societies advertising accounts with great-sounding names, even if those accounts actually have very low interest rates.

Researchers at Which? recently found the “top ten mis-named savings accounts”, all from major banks and building societies, all with lucrative-sounding names and pathetic interest rates (0.15% or less a year).

For instance, the  “High/Extra High Interest account” from the Newcastle Building Society has an interest rate of just 0.01%. Just to clarify, that would mean that if you had £1,000 in your savings account, you would make just £1 in interest during an entire year. And, at the same time, inflation will be running down the value of that £1,000 in the bank.

Most of the accounts found by Which? are no longer available to new customers, but if you are still on them, then it’s certainly worth your while moving elsewhere to enjoy a better rate. Here’s a list of the ten accounts named and shamed.  

Provider & account name

Gross interest rate (%)

Fixed/Variable interest rates

Still available to new customers

Barclays Reward Saver

0.1%*

Variable

No

Derbyshire BS Triple Gold

0.1%**

Variable

No

Halifax Liquid Gold

0.05%

Variable

Yes

Lloyds TSB Incentive Saver

2.75% a month when no withdrawals are made. 0% a month if you make a withdrawal.

Variable

 

Yes

NatWest Diamond Reserve

0.1%

Variable

No

Newcastle Building Society High/Extra High Interest Account

0.01%

Variable

No

Northern Bank (NI) Midas Gold

0.1%.

Variable

Yes, but only for customers over 50

Norwich & Peterborough Building Society Super Saver (II?)

0.1% with possible added bonus of 1.5%***

Variable

No

Santander Platinum Savings Deposit

0.15%

Variable

No

The Co-operative Bank Save Wise

0.06% (applicable from 11/3/08 onwards). Higher rate for balances of £5,000 or more.

Variable

No

*The rate could be up to 0.1% higher if you make less than 7 withdrawals a year. **The rate could be higher if the account contains more than £10,000 a year. *** You get this bonus if you do not make more than one withdrawal per year, and you make 12 consecutive monthly investments in the account.

Source: Which?

Why are the banks doing this?

One reason for these low rates is that the Bank of England’s base rate is very low at the moment (0.5%). The banks can argue that they are merely reflecting this low base rate in the rates they offer for their own savings accounts.

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Another reason is that, in some cases, these are old accounts with relatively few customers on them. The Newcastle Building Society High/Extra High Account (0.01% gross interest) started in 1980 and no new customers have been allowed in since 1987, although there are still customers with this account at the moment. The bank maintains that their customers have been kept well-informed about their interest rates.

What about the regulator?

The FSA’s regulations specify that financial promotions should be balanced, clear and not misleading. The regulatory organisation makes clear that “[c]onsumers should be confident that products perform as they have been led to expect.” There’s also a financial promotions helpline (0300 500 5000) you can call if you are concerned about the way any financial product is being marketed.

In the past, the FSA has even acted against companies selling so-called “structured products” in an unfair way. The FSA is not able to comment on its ongoing investigations, though, so there is no way of knowing if they are investigating the way that banks are selling savings accounts.  

In today's video, I'm going to highlight five things you should consider when choosing a savings account.

Banks often don’t help customers by making it difficult, or even nigh on impossible to find the interest rates at the present moment for saving accounts. If you bank with a high street bank, and want to find out the interest rate on offer from your saving account, you might want to have a read of Ditch these best buy savings accounts.

The other major stumbling block to getting the best deal tends to be bonus rates. Savings accounts are often advertised with relatively high bonus rates, which then stop after a set period, often one year.

What’s in a name?

The moral of the story is that you shouldn’t let the name of a financial product influence you too much when you are considering your options. Consumers need to be hard-headed, and look squarely at the facts, in this case the level of interest rates.

In particular, you need to know not just what the rate is when you start a savings account, but what it will be in the future. You also need to keep on top of any developments with the rate on your account.

If you've been caught out by accounts with attractive names in the past, be sure to share your experiences with your fellow readers via the comment box below.

More: Ditch these 'best-buy' savings accounts - now! I Five ways to increase your savings

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