Online versus in-branch savings accounts

When it comes to choosing the best savings account, are you better off with an online account, or one you can operate in-branch?

Recent research from Which? has revealed that the four million Britons who don’t have internet access are missing out on the best rates for financial products. In fact, an online saver could be 37% better off over a year compared with a branch-only saver.

That’s because the average rate for instant access savings accounts available in-branch is just 0.56%. In comparison, the average rate available online is 1.14%.

So let’s take a closer look at just how online savings accounts compare to those on the high street.

Instant access

If you’re after an instant access savings account, the two tables below show the top five savings accounts for those of you wanting to manage your money online, and those of you who’d prefer to do it in-branch.

Online

In-branch

*Exclusive to Epsom branch.

As you can see, those savings accounts that operate solely online offer far more attractive rates of interest than those that operate in-branch. For example, if you’re an online customer, you could be earning 2.89% with the NatWest e-Savings Account. But if you only want to operate your account in-branch, the best rate you’ll receive is 2.50% with the Santander Instant Access Saver – so considerably less.

Not only will you get a lower rate of interest if you don’t want to operate your account online, but personally, I think relying on in-branch accounts is also inconvenient.

Many building societies only operate in certain areas and thus if you don’t live anywhere near a branch, there’s very little point in opting for that particular account.

For example, the National Counties BS Branch Saver Account is only available to those of you living in or near Epsom – so if you don’t, you may as well rule that one out.  

That said, it's worth pointing out that if you don't like the idea of having a bonus rate on your savings account (which means the rate will drop significantly after a year), an in-branch account may be more suitable. Only one out of the five in-branch savings accounts above has a bonus rate, but all of the online accounts have some sort of bonus attached - in the case of the ING Direct Savings Account, the rate is fixed for a year, after which point it drops to 0.50%.

Fixed rate bonds

Now let’s take a look at fixed rate bonds for those of you who are prepared to lock away your money for a year or more.

The tables below show the top two fixed rate bonds for terms of one year, two years, three years and four years for both online and in-branch accounts.

Online one year bonds

In-branch one year bonds

For one year fixed rate bonds, again, you’ll be better off if you have online access because both online accounts in the table above are more competitive than those that you can only operate in-branch.

Online two year bonds

In-branch two year bonds

Interestingly, for two year fixed rate bonds, the pattern starts to change as the interest rates on online only accounts are no better than the rates for in-branch accounts. In fact, the market-leading rate of 3.60% can be achieved with the Birmingham Midshires Internet 2 Year Fixed Rate, the Cheshire BS Fixed Rate Bond or the Dunfermline BS Fixed Rate Bond. So it doesn't matter whether you prefer to operate your account online or not.

However, the really good news is that if you want the best of both worlds and fancy operating your account online as well as in-branch (and by post), the Derbyshire BS Fixed Rate Bond (which I haven’t mentioned in the above tables) allows you to do this and you won't lose out on any interest. It also offers a market-leading rate of 3.60% until 31.08.12 with a minimum investment of £100.

Online three year bonds

In-branch three year bonds

This time, the interest rates for three year bonds are better if you operate your account in-branch. Both the Cheshire BS 3 Year Fixed Rate Bond and the Dunfermline BS Fixed Rate Bond offer a market-leading 4.11%, compared with the AA Internet 3 Year Fixed Rate Bond which offers a slightly lower rate of 4.10%. That said, the difference between the rates is so small, it's not worth getting excited about.

Again, however, you can operate your account online and in-branch or by post if you choose the Derbyshire BS Fixed Rate Bond which offers a market-leading rate of 4.11% until 31.08.13.

Online four year bonds

In-branch four year bonds

Finally, for four year bonds, online users get a marginally better deal, with the chance to earn 4.25% compared to a possible 4.20% for non-online users.

So, overall, I think it’s fair to say that internet-users do get the better deal when it comes to savings rates. However, this isn’t the case every single time, so as always, the moral of the story is to ensure you shop around fully if you want to hunt out the very best deal for your savings.

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