Opinion: ‘exclusive’ rates are turning savings bestbuys into a closed shop

More and more banks are now reserving their top savings rates for existing current account customers, but is this practice really in the spirit of a competitive financial market?

When it comes to finding the best place to stash your savings, research is key.

But imagine you’ve hunted through the ‘best buy’ tables and found yourself effectively barred from many of the market-leading products.

Well, this is precisely what is happening at the moment.

As part of our regular reviews of the savings landscape, we’ve noticed that many banks are now reserving their top savings rates – often the market leaders – for customers with a ‘linked’ current account.

In other words, you’d need to open a new current account with the same bank – and use it regularly – to get your hands on this juicy rate.

That simply isn't a realistic option for most savers, especially when you consider how often you need to move money to keep it earning a top rate. 

The market leaders

You don’t have to look far to find examples of this practice.

At the time of writing, Ulster Bank offers the market-leading easy access savings rate of 5.2% AER to those with a linked current account.

The headline rate includes a fixed 1% bonus, which lasts until 16 January 2025 – after which, the rate will return to Chase’s standard 4.1 AER%.

Likewise, the highest-paying regular saver is reserved for those who open a 1^st Account with First Direct.

As part of the bank’s switching incentive, new customers will receive 7% AER fixed for 12 months when they open a current account and then take out a regular saver.

And if you’re looking for a fixed-rate deal, your best bet is Nationwide’s 5.5% 18-month fix on balances up to £10,000 but again there’s a catch – you needed to have been an existing Nationwide customer on 22 May.

Top savings accounts: where to find the best rates for your cash

So, what’s the problem?

On the face of it, offering top deals to existing customers might seem like a great way to build relationships or reward loyalty.

The trouble is that this practice can also bar the majority of savers from getting the best returns on their cash.

Say you find an eye-catching savings deal that is reserved for existing customers of a particular bank, it probably isn’t worth switching your current account simply to earn a little extra on your savings.

In effect, this means that market-leading savings accounts risk becoming a ‘closed shop’ for those who hold certain current accounts.

Competition can only truly thrive, I believe, when top rates are available to all.

Indeed, there is a fine line between ‘exclusive’ and ‘exclusionary’.

And although we’re big fans of regularly moving accounts to cash in on welcome bonuses, common sense dictates that you can only do this every so often, especially if you’re happy with your existing bank.

Watch out for ‘variable’ rates

Something else to bear in mind when you’re opening a linked savings account is that these deals often include a ‘variable’ interest rate.

In theory, this means that the rate could be withdrawn – or drastically reduced – at any time.

Is it really worth switching your bank account for an attractive perk that could soon disappear?

On top of that, these market-leading rates are typically available for the first 12 months of account ownership, after which the return plummets.

Should this happen, you may find your savings suddenly languishing at an uncompetitive rate.

Beware deposit limits

Whenever you spot a market-leading savings rate, it’s important to do your sums to calculate how much you can actually earn on your pot.

Although a table-topping rate might seem too good to refuse, closer inspection often reveals that these accounts have relatively low deposit limits.

This is a common problem with regular savers and high-interest current accounts in particular, which generally only allow you to set aside between £1,000 and £3,000.

If you have a larger savings pot these accounts aren't of much use.

The best high-interest current accounts

What can you do?

Frustratingly, the answer is very little.

It’s important to point out that banks aren’t breaking any rules by reserving their highest-paying deals for existing customers.

Nevertheless, this doesn’t stop you from thinking tactically when you’re looking for a new savings account.

Remember, headline-grabbing bestbuys are not the only competitive deals on the market.

If the current market leader is reserved for customers of a certain bank, look at the second or third most attractive offers.

Often, these rates are only slightly lower than those at the top of the tables.

For example, at the time of writing, the best easy access account that is open to everyone pays a rate of 5.02%. That isn't too far off the market-leading 5.2% rate that requires you to open a current account.

Likewise, the best open-to-all fixed-rate account pays 5.25% compared to the top members-only rate of 5.5%.    

Consider everything a bank has to offer

If you’re planning to switch your current account, it’s important to take a comprehensive view of all the features a new bank has available.

For example, switching to an online-only provider with a market-leading welcome bonus probably isn’t the best idea if you prefer to do your banking in person.

Likewise, it doesn’t make sense to open a new current account simply to access a top rate on a regular saver if you can’t afford to put something aside each month.

This is because most of these accounts won’t pay you any interest at all if you fail to make a deposit in just one month.

Eight questions to ask before switching banks

Have your say

What do you think of this practice? Do you agree that the best savings rates should be open to everything? Or perhaps you think that banks have every right to reward their existing customers with top deals…

We’d love to hear your thoughts in the comments below.